AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1996.
REGISTRATION NO. 333-________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
PALEX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2448 76-0520673
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3555 TIMMONS LANE, SUITE 610
HOUSTON, TEXAS 77027
(713) 626-9711
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------------
VANCE K. MAULTSBY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3555 TIMMONS LANE, SUITE 610
HOUSTON, TEXAS 77027
(713) 626-9711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------------
COPY TO: COPY TO:
JOHN F. WOMBWELL THOMAS J. MURPHY
Andrews & Kurth L.L.P. McDermott, Will & Emery
4200 Texas Commerce Tower 227 West Monroe Street
Houston, Texas 77002 Chicago, Illinois 60606
(713) 220-4200 (312) 372-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the Registration Statement becomes effective.
------------------------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] _____
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _____
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED SHARE AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C>
Common Stock, $.01 par value 3,450,000 $11.00 $37,950,000 $11,500
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a).
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
3,000,000 SHARES
PalEx, Inc.
(Logo)
COMMON STOCK
------------------------------------
All of the 3,000,000 shares of Common Stock offered hereby are being
sold by PalEx, Inc. (the "Company"). Prior to this offering, there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price will be between $9.00 and $11.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company intends to file an application to
list the Common Stock on ________________________________.
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
Per Share............ $ $ $
Total(3)............. $ $ $
===================== ================= ===================== ==================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting estimated expenses of $________ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock, solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public as shown above. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $____________,
$___________ and $_____________, respectively. See "Underwriting."
------------------------------------
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to the right of the Underwriters to reject any order in whole or in
part. It is expected that delivery of the shares of Common Stock will be made at
the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland on or about
__________________, 1997.
ALEX. BROWN & SONS
INCORPORATED MONTGOMERY SECURITIES
THE DATE OF THIS PROSPECTUS IS ___________________, 1997.
<PAGE>
[MAP OF LOCATIONS AND PICTURE OF PRODUCTS
AND MANUFACTURING PROCESS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
CONCURRENTLY WITH THE CLOSING OF THE OFFERING MADE HEREBY (THE
"OFFERING"), PALEX, INC. PLANS TO ACQUIRE, IN SEPARATE TRANSACTIONS
(COLLECTIVELY, THE "ACQUISITIONS"), IN EXCHANGE FOR CONSIDERATION INCLUDING
SHARES OF ITS COMMON STOCK, THREE BUSINESSES: FRASER INDUSTRIES, INC.
("FRASER"), RIDGE PALLETS, INC. ("RIDGE") AND INTERSTATE PALLET CO., INC.
("INTERSTATE" AND, TOGETHER WITH FRASER AND RIDGE, THE "FOUNDING COMPANIES").
UNLESS OTHERWISE INDICATED, REFERENCES HEREIN TO "PALEX" MEAN PALEX, INC., AND
REFERENCES TO THE "COMPANY" MEAN PALEX AND THE FOUNDING COMPANIES COLLECTIVELY.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION AND
SHARE AND PER SHARE DATA IN THIS PROSPECTUS (I) GIVE EFFECT TO THE ACQUISITIONS,
(II) ASSUME THE UNDERWRITERS' OVER- ALLOTMENT OPTION IS NOT EXERCISED AND (III)
GIVE EFFECT TO A 1,021-FOR-1 STOCK SPLIT OF THE COMMON STOCK EFFECTED IN
DECEMBER 1996.
THE COMPANY
PalEx was formed in January 1996 to create a national provider of
pallets and related services. Concurrently with the closing of this Offering,
PalEx will acquire three of the leading U.S. pallet businesses, making it the
largest producer of new pallets and one of the largest pallet recyclers in the
U.S. The Company believes that these acquisitions will enable it to capitalize
on the significant trends currently affecting product manufacturing and
distribution practices throughout the U.S., including the increasing reliance by
shippers and logistics agents on a smaller number of better capitalized, more
sophisticated vendors. The Company will provide a broad complement of pallet
products and related services, including the manufacture and distribution of new
pallets; the recycling of pallets (including used pallet retrieval, repair,
remanufacture and secondary marketing); maintenance of depot operations and the
sorting and storage of pallets for selected customers; and the processing and
marketing of various wood-based by-products derived from pallet recycling
operations. The Company will initially operate from 21 facilities in Florida,
Texas, Virginia, California, Arkansas, Georgia, Illinois, Mississippi and South
Carolina. For its fiscal year ended August 31, 1996, the Company generated pro
forma combined revenues, income from operations and net income of $97.7 million,
$8.9 million and $5.2 million, respectively. Ridge and Fraser, two of the
Founding Companies, are currently among the largest pallet businesses in the
U.S., based on revenues, and Interstate is regarded in the pallet industry as a
leading developer of pallet recycling services and products. The Company intends
to actively pursue acquisitions of additional leading pallet companies as part
of its growth strategy.
The pallet industry produces a variety of storage and shipping
platforms. Pallets are typically constructed of wood and used in virtually all
U.S. industries where products are physically distributed, including, among
others: automotive; chemical; consumer products; grocery; produce and food
production; paper and forest products; retailing; and steel and metals. Based on
information supplied by industry sources, the Company estimates that the U.S.
pallet industry generated revenues of approximately $5 billion in 1995 and that
it is served by approximately 3,600 companies, most of which are privately held,
operate in only one location and serve customers within a limited geographic
radius.
The pallet industry has experienced significant changes and growth
during the past several years. These changes are due, among other factors, to
the focus by FORTUNE 1000 businesses on improving the logistical efficiency of
their manufacturing and distribution systems. This focus has caused many of
these businesses to attempt to reduce significantly the number of vendors
serving them in order to simplify their procurement and product distribution
processes. It has also prompted large manufacturers and distributors to
outsource key elements of those processes that are not within their core
competencies and to develop just-in-time procurement, manufacturing and
distribution systems. With the adoption of these systems, expedited product
movement has become increasingly important and the demand for a high quality
source of pallets has increased. Palletized freight facilitates movement through
the supply chain, reducing costly loading and unloading delays at distribution
centers and warehouse facilities. However, the use of low-quality or improperly
sized pallets may increase the level of product damage during shipping or
storage. As a result, there has been an increased demand for high-quality
pallets in an attempt to reduce product damage during shipping and storage.
-3-
<PAGE>
The broad changes affecting U.S. industry have created significant
demand for higher quality pallets distributed through an efficient, more
sophisticated system. Environmental and cost concerns have also accelerated the
trend toward increased reuse or "recycling" of previously used pallets, further
increasing the importance of the quality of newly manufactured pallets. In
recognition of these trends, Chep USA ("CHEP") has established a national pallet
leasing program that provides high-quality pallets to customers throughout the
U.S. for a daily fee. CHEP is a partnership created by Brambles Industries
Limited, an Australian publicly-held corporation, and GKN, Ltd., a publicly-held
U.K. corporation. Ridge and Fraser, two of the Founding Companies, manufacture
and repair pallets for CHEP and provide a variety of logistical services with
respect to its existing pallet pool, including the repair, storage and
just-in-time delivery of pallets. CHEP currently does not manufacture pallets
and engages in limited repair operations. During the twelve months ended August
31, 1996, approximately 29% of the Company's pro forma combined revenues and a
significant percentage of the Company's growth were attributable to CHEP. The
Company expects to continue to build its relationship with CHEP both
geographically and by providing additional logistical services.
GROWTH STRATEGY
The Company's goal is to become a leading national provider of
pallets and related services by pursuing an aggressive acquisition strategy and
by continuing to expand its existing operations.
GROWTH THROUGH ACQUISITIONS. The Company intends to actively pursue
acquisitions of leading companies of which the management and operating
philosophies are complementary to those of the Founding Companies. The Company
also intends to expand within its existing markets through "tuck-in"
acquisitions to expand its market penetration as well as to provide a broader
range of services to existing customers in those markets. These tuck-in
acquisitions will generally involve smaller pallet companies whose operations
can be incorporated into the Company's existing operations without a significant
increase in infrastructure.
INTERNAL GROWTH. The Company has opened nine new locations in the
past three years and expects to open additional locations in the future. The
Company intends to expand the service offerings at many of its locations to
include a combination of manufacturing, repair, recycling and the sale of
by-products. The Company also expects to be able to accelerate the internal
growth of the Founding Companies and businesses acquired in the future by
continuing to develop the Company's relationship with CHEP and other large
customers and by developing and implementing a "best practices" program.
PalEx believes that a significant market opportunity exists for a
company that can consistently offer high-quality pallets and related value-added
services to large pallet users in the U.S. The Company believes that the
prominence and operating strength of the Founding Companies and the experience
of its executive management will provide the Company with a significant
competitive advantage as it pursues its growth strategy.
-4-
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company.............................................. 3,000,000 shares
Common Stock to be outstanding after the Offering(1)............................. 10,123,889 shares
Use of proceeds.................................................................. To pay the cash portion of the purchase price
for the Founding Companies, to repay certain
indebtedness and for general corporate purposes,
which may include future acquisitions. See
"Use of Proceeds."
Proposed trading symbol..........................................................
</TABLE>
(1) Includes (i) 5,910,000 shares to be issued to the owners of the Founding
Companies, (ii) 50,000 shares issued to the management of PalEx, (iii)
1,021,389 shares issued to Main Street Capital Partners, L.P. ("Main
Street"), (iv) 3,000,000 shares to be sold in the Offering and (v) 142,500
shares to be contributed to the Founding Companies' profit sharing plans.
Excludes options to purchase 200,000 shares which are currently outstanding
and options to purchase 725,000 shares which are expected to be granted
upon consummation of this Offering. See "Management" and "Certain
Transactions."
-5-
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PalEx will acquire the Founding Companies simultaneously with and as
a condition to the consummation of this Offering. For financial statement
presentation purposes, however, Fraser, one of the Founding Companies, has been
identified as the "accounting acquiror." The following summary unaudited pro
forma combined financial data presents certain data for the Company, as adjusted
for (i) the effects of the Acquisitions on an historical basis, (ii) the effects
of certain pro forma adjustments to the historical financial statements and
(iii) the consummation of this Offering. See "Selected Financial Data", the
Unaudited Pro Forma Combined Financial Statements and the notes thereto and the
historical financial statements for each of Fraser and Ridge and the notes
thereto included elsewhere in this Prospectus.
Pro Forma (1)
---------------
Twelve Months Ended
August 31, 1996
---------------
Income Statement Data:
Revenues ...................................... $ 97,725
Gross profit .................................. 15,944
Selling, general and administrative
expenses(2) ................................ 6,183
Goodwill amortization(3) ...................... 834
Income from operations......................... 8,927
Interest income(expense), net(4) .............. 23
Net income .................................... 5,196
Earnings per share ............................ $ 0.51
Shares used in computing pro
forma income per share(5) .................. 10,123,889
AS OF AUGUST 31, 1996
-------------------------
PRO FORMA(6) AS ADJUSTED(7)
----------- --------
BALANCE SHEET DATA:
Working capital .......................... $ (6,136) $ 11,592
Total assets ............................. 53,941 57,529
Total debt, including current portion .... 13,014(8) 602
Stockholders' equity ..................... 22,746 50,146
(1) The pro forma combined income statement data assume that the Acquisitions
and Offering were closed on September 1, 1995 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results. During the
periods presented above, the Founding Companies were not under common
control or management and, therefore, the data presented may not be
comparable to or indicative of post-combination results to be achieved by
the Company. The pro forma combined income statement data is based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus. The pro forma income statement data includes operating results
of Ridge for the fiscal year ended July 28, 1996.
(2) The pro forma combined income statement data reflects an aggregate of
approximately $630,000 in pro forma reductions in salary and benefits of
the owners of the Founding Companies to which they have agreed
prospectively, and the effect of revisions of certain lease agreements
between certain stockholders of the Founding Companies See "Certain
Transactions."
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 30-year period and computed on the basis described in
the Notes to the Unaudited Pro Forma Combined Financial Statements.
(4) Includes interest income(expense) and other income(expense), net and
reflects the reduction of interest expense attributed to the repayment of
debt with proceeds from the Offering.
(5) Includes (i) 5,910,000 shares to be issued to the owners of the Founding
Companies, (ii) 50,000 shares issued to the management of PalEx, (iii)
1,021,389 shares issued to Main Street, (iv) 3,000,000 shares to be sold in
the Offering and (v) 142,500 shares to be issued to the Founding Companies'
profit sharing plans. Excludes options to purchase 200,000 shares which are
currently outstanding and options to purchase 725,000 shares which are
expected to be granted upon consummation of this Offering.
(6) The pro forma combined balance sheet data assume that the Acquisitions were
closed on August 31, 1996. The pro forma combined balance sheet data is
based upon preliminary estimates, available information and certain
assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. The pro forma balance sheet data includes
Ridge as of July 28, 1996.
(7) Reflects the closing of this Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the purchase price of
the Acquisitions and to repay indebtedness of the Founding Companies. See
"Use of Proceeds" and "Certain Transactions."
(8) Excludes $11.4 million representing the cash consideration and S
Corporation Accumulated Adjustment Accounts to be paid to the owners of the
Founding Companies with a portion of the net proceeds from the Offering.
-6-
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents certain summary data for each of
Fraser, Ridge, and Interstate.
FISCAL PERIODS ENDED (1)
-------------------------------
1994 1995 1996
--------- --------- ---------
FRASER(2):
Revenues ................................ $23,114 $30,135 $45,100
Gross profit ............................ 2,359 4,576 7,200
Selling, general and administrative
expenses(3) .......................... 1,761 2,131 2,904
Income from operations................... 598 2,445 4,296
RIDGE(4):
Revenues ................................ $47,946 $54,450 $48,341
Gross profit ............................ 7,340 8,062 7,801
Selling, general and administrative
expenses(3) .......................... 4,018 3,826 3,825
Income from operations................... 3,322 4,236 3,976
INTERSTATE:
Revenues ................................ $ 3,480 $ 3,772 $ 4,284
Gross profit ............................ 712 601 943
Selling, general and administrative
expenses(3) .......................... 260 163 84
Income from operations................... 452 438 859
- ------------------------------------
(1) The fiscal periods presented are as follows: Fraser - fiscal years ended
November 30, 1994 and November 30, 1995, and the twelve months ended August
31, 1996; Ridge - fiscal years ended July 31, 1994, July 30, 1995 and July
28, 1996; and Interstate - fiscal years ended August 31 for all years
presented.
(2) Fraser changed its fiscal year end to August 31 during 1996. The financial
data for both the year ended November 30, 1995 and the twelve months ended
August 31, 1996 include the results of Fraser for the three months ended
November 30, 1995 which were as follows: revenues of $8.9 million, gross
profit of $1.3 million and selling, general and administrative expenses of
$605,000.
(3) The Company anticipates reductions in selling, general and administrative
expenses aggregating approximately $630,000 from reductions in salary and
benefits of the owners of the Founding Companies to which they have agreed
prospectively. These reductions are not reflected in the numbers presented.
(4) For the three months ended October 29, 1996, Ridge had revenues of $10.1
million, gross profits of $888,000, selling, general and administrative
expenses of $985,000 and loss from operations of $97,000. For the three
months ended October 27, 1995, Ridge had revenues of $10.5 million, gross
profits of $1.5 million, selling, general and administrative expenses of
$1.0 million and income from operations of $442,000.
-7-
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
A NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN
THIS PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY. PalEx was founded in January
1996 but has conducted no operations and generated no revenue to date. PalEx has
entered into agreements to acquire the Founding Companies simultaneously with
the closing of this Offering. The Founding Companies have been operating as
separate independent entities and there can be no assurance that the Company
will be able to integrate these businesses on an economic basis. In addition,
there can be no assurance that the recently assembled management group will be
able to oversee the combined entity and effectively implement the Company's
operating or growth strategies. The pro forma combined financial results of the
Founding Companies cover periods when the Founding Companies and PalEx were not
under common control or management and, therefore, may not be indicative of the
Company's future financial or operating results. The success of the Company will
depend on the extent management is able to centralize and integrate certain
administrative and accounting functions and otherwise integrate the Founding
Companies and other future acquisitions into one organization in a profitable
manner. The inability of the Company to successfully integrate the Founding
Companies would have a material adverse effect on the Company's financial
condition and results of operations and would make it unlikely that the
Company's acquisition program will be successful.
SUPPLY AND DEMAND FOR LUMBER. Pallet prices are closely related to
the changing costs and availability of lumber, the principal raw material used
in the manufacture and repair of wooden pallets. Typically, lumber prices fall
in oversupplied lumber markets, enabling small pallet manufacturers with limited
capital resources to procure lumber and initiate production of low-cost pallets,
depressing pallet prices overall and adversely affecting the Company's revenues
and operating margins. The Company's revenues and gross margins tend to
fluctuate based upon changing lumber prices. The majority of the lumber used in
the pallet industry is hardwood, which is only grown in certain regions of the
country and which is difficult to harvest in adverse weather, making its pricing
volatile. For the twelve months ended August 31, 1996, purchases from two lumber
vendors accounted for approximately 16% and 12%, respectively of the Company's
total lumber purchases. While the Company purchased plywood and lumber from over
85 vendors during the twelve months ended August 31, 1996, and believes that it
will benefit from strong relationships with multiple lumber suppliers, there can
be no assurance that the Company will be able to secure adequate lumber supplies
in the future. Lumber supplies and costs are affected by many factors outside
the Company's control, including weather, governmental regulation of logging on
public lands, lumber agreements between Canada and the U.S. and competition from
other industries that use similar grades and types of lumber. To the extent the
Company encounters adverse lumber prices or is unable to procure adequate
supplies of lumber, its financial condition and results of operations could be
materially adversely affected. See "Business--Raw Materials."
RELIANCE ON ACQUISITIONS. One of the Company's principal growth
strategies is to increase its revenues and the markets it serves through the
acquisition of additional pallet manufacturing and recycling companies. There
can be no assurance that the Company will be able to identify or acquire
additional businesses or to integrate and manage such additional businesses
successfully. Acquisitions may involve a number of risks, including: adverse
short-term effects on the Company's reported operating results; diversion of
management's attention; dependence on retention, hiring and training of key
personnel; risks associated with unanticipated problems or legal liabilities;
and amortization of acquired intangible assets. Some or all of these risks could
have a material adverse effect on the Company's financial condition or results
of operations. In addition, to the extent that consolidation becomes more
prevalent in the industry, the prices for attractive acquisition candidates may
increase and the number of attractive acquisition candidates may decrease and,
in any event, there can be no assurance that businesses acquired in the future
will achieve sales and profitability that justify the investment therein. See
"Business -- Strategy."
ACQUISITION FINANCING. The Company intends to use its Common Stock
for a portion of the consideration for future acquisitions. If the Common Stock
does not maintain a sufficient valuation or potential acquisition candidates are
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to pursue its acquisition program. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through future debt or equity
financings. Using cash to complete acquisitions and finance internal growth
could substantially limit the Company's financial flexibility, using debt could
result in financial covenants that limit the Company's
-8-
<PAGE>
operations and financial flexibility, and using equity may result in significant
dilution of the ownership interests of the then existing stockholders of the
Company. The Company has recently initiated negotiations with a group of
commercial banks to provide the Company with a credit facility which will allow
the Company to borrow up to approximately $35.0 million to be used for
acquisitions, working capital and other general corporate purposes. There can be
no assurance that the Company will be able to obtain such financing if and when
it is needed or that, if available, it will be available on terms the Company
deems acceptable. As a result, the Company might be unable to pursue its
acquisition strategy successfully. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources -
Combined" and "Business--Strategy."
MANAGEMENT OF GROWTH. The Company expects to grow through internal
growth and acquisitions. Management expects to expend significant time and
effort in evaluating, completing and integrating acquisitions and opening new
facilities. There can be no assurance that the Company's systems, procedures and
controls will be adequate to support the Company's operations as they expand.
Any future growth also will impose significant added responsibilities on members
of senior management, including the need to identify, recruit and integrate new
senior level managers and executives. There can be no assurance that such
additional management will be identified and retained by the Company. If the
Company is unable to manage its growth efficiently and effectively, or is unable
to attract and retain additional qualified management, there could be a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Strategy."
COMPETITION. The markets for pallet manufacturing and recycling
services are highly fragmented and competitive. Competition on pricing is often
intense and the Company may face increasing competition from pallet leasing or
other pallet systems providers, which are marketed as less expensive
alternatives to new pallet purchasers. CHEP's pallet leasing system competes
with new pallet sales to the grocery and wholesale distibution industries, and
may expand into other industries in the future. In addition, pallet
manufacturing and recycling operations are not highly capital intensive, the
barriers to entry in such businesses are minimal. Other companies with
significantly greater capital and other resources than the Company (including
CHEP) may enter or expand their operations in the pallet manufacturing and
recycling businesses in the future, changing the competitive dynamics of the
industry. The Company has in the past and will continue to compete with lumber
mills in the sale of new pallets. The saw mills typically view pallet
manufacturing as an opportunity to use the lower grade lumber that would
otherwise be waste for the mill. Certain other smaller competitors may have
lower overhead costs and consequently, may be able to manufacture or recycle
pallets at lower prices than the Company. While the Company estimates, based on
industry sources, that non-wooden pallets currently account for less than 10% of
the pallet market, there can be no assurance that the Company will not face
increasing competition from pallets fabricated from non-wooden components in the
future. For example, Ridge currently sells agricultural harvesting boxes. These
products have recently faced increasing competition from plastic agricultural
containers which has reduced the number of agricultural harvesting boxes sold by
Ridge. The Company expects competition with plastic agricultural harvesting
boxes to continue in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Competition."
RELIANCE ON CHEP. During the twelve months ended August 31, 1996, approximately
29% of the Company's pro forma combined revenues and a significant percentage of
the Company's growth were attributable to CHEP. In addition, certain of the
Company's facilities are substantially dependent on CHEP as their predominant
customer. If CHEP were to materially decrease its purchase of pallets and
services from the Company, either because CHEP's operations encounter financial
reversals or as a result of CHEP's determination to manufacture pallets
internally, to buy pallets and services from competitors of the Company or to
substantially increase the number of pallets it repairs or for any other reason,
the Company's financial condition and results of operations could be materially
adversely affected. The Company and CHEP enter into an agreement for each
Company facility which performs CHEP repair or depot services. Although CHEP has
not terminated or failed to renew any of these agreements to date, there can be
no assurance that CHEP will not terminate or fail to renew such agreements in
the future. See "Business--Customers."
SEASONALITY; FLUCTUATION OF QUARTERLY OPERATING RESULTS. The pallet
manufacturing business can be subject to seasonal variations in operations and
demand. For example, the Company's southeastern operations experience the
greatest demand for new pallets during the citrus and produce harvesting seasons
(generally October through May) with significantly lower demand in the summer
months. Quarterly results may also be materially affected by the timing of
acquisitions, the timing and magnitude of acquisition assimilation costs, costs
of opening new facilities, gain or loss of
-9-
<PAGE>
a material customer and variation in product mix. In addition, the Company's
revenues and gross margins can fluctuate significantly with variations in lumber
prices. Accordingly, the Company's performance in any particular quarter may not
be indicative of the results which can be expected for any other quarter or for
the entire year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WEATHER CONDITIONS. The Company sells a significant portion of its
production to customers who ship agricultural products. Severe weather,
particularly during the harvesting seasons, may cause a reduction in demand from
agricultural customers, adversely affecting the Company's revenues and results
of operations. For example, a heavy freeze or other weather adversely affecting
the citrus and produce industries in Florida could have a significant negative
impact on the Company's financial condition and results of operations. In
addition, adverse weather conditions may affect the Company's ability to obtain
adequate supplies of lumber at a reasonable cost. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation."
FACTORS AFFECTING INTERNAL GROWTH. The Company's ability to generate
internal earnings growth will be affected by, among other factors, its ability
to expand the range of services offered to customers, increase existing customer
bases (including business with CHEP), attract and retain employees, obtain raw
materials at acceptable prices, open additional manufacturing and repair
facilities and reduce operating and overhead.
EFFECT OF CERTAIN CHARTER PROVISIONS. The Board of Directors of the
Company is empowered to issue Preferred Stock without stockholder action. The
existence of this "blank-check" Preferred Stock could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise, even if such a transaction would
provide greater value to the Company's stockholders than if the Company remained
independent. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. Certain provisions of the Delaware General
Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Description of Capital Stock."
DEPENDENCE ON KEY PERSONNEL. The Company's operations are dependent
on the continued efforts of its executive officers and on senior management of
the Founding Companies. Furthermore, the Company will likely be dependent on the
senior management of companies that may be acquired in the future. Although the
Company will enter into an employment agreement with each of the Company's
executive officers, there can be no assurance that any individual will continue
in such capacity for any particular period of time. The loss of key personnel,
or the inability to hire and retain qualified employees could have an adverse
effect on the Company's business, financial condition and results of operations.
The Company does not intend to carry key-person life insurance on any of its
employees. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following the
completion of the Acquisitions and this Offering, the Company's executive
officers, directors and key employees, and entities affiliated with them, will
beneficially own 70.4% of the outstanding shares of Common Stock (67.4% if the
Underwriters' over-allotment option is exercised in full). These persons, if
acting in concert, will be able to continue to exercise control over the
Company's affairs, to elect the entire Board of Directors and to control the
disposition of any matter submitted to a vote of stockholders. See "Principal
Stockholders."
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES. Approximately $19.8
million, or approximately 72.3%, of the net proceeds of this Offering will be
paid in cash to the owners of the Founding Companies (all of whom will become
officers, directors or key employees of the Company) or will be used to repay
indebtedness of the Founding Companies. Approximately $7.1 million of the
indebtedness to be repaid is held by certain stockholders and affiliates of the
Founding Companies. Proceeds available for acquisitions, working capital and
other uses by the Company will be approximately $4.1 million, or 15.0% of the
net proceeds of this Offering (approximately $8.3 million, or 26.3%
-10-
<PAGE>
of the net proceeds of this Offering, if the Underwriters' over-allotment is
exercised in full). See "Use of Proceeds" and "Certain Transactions."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES. The Company's
operations are subject to various environmental laws and regulations, including
those dealing with handling and disposal of waste products, fuel storage and air
quality. As a result of past and future operations at its facilities, the
Company may be required to incur remediation costs and other expenses related
thereto. In addition, although the Company intends to conduct appropriate due
diligence with respect to environmental matters in connection with future
acquisitions, there can be no assurance that the Company will be able to
identify or be indemnified for all potential environmental liabilities relating
to any acquired business.
NO PRIOR MARKET, POSSIBLE VOLATILITY OF STOCK. Prior to this
Offering, no public market for the Common Stock has existed, and the initial
public offering price, which will be determined by negotiation between the
Company and representatives of the Underwriters, may not be indicative of the
price at which the Common Stock will trade after this Offering. See
"Underwriting" for the factors to be considered in determining the initial
public offering price. Application has been made to list the Common Stock on the
, but no assurance can be given that an active trading market for
the Common Stock will develop or, if developed, continue after the Offering. The
market price of the Common Stock after the Offering may be subject to
significant fluctuations from time to time in response to numerous factors,
including variations in the reported financial results of the Company and
changing conditions in the economy in general or in the Company's industry in
particular. In addition, the stock markets experience significant price and
volume volatility from time to time which may affect the market price of the
Common Stock for reasons unrelated to the Company's performance.
SHARES ELIGIBLE FOR FUTURE SALE. As of December 20, 1996, 1,071,389
shares of Common Stock were issued and outstanding. Simultaneously with the
closing of the Offering, the stockholders of the Founding Companies will
receive, in the aggregate, 5,910,000 shares of Common Stock as a portion of the
consideration for their businesses. None of these 5,910,000 shares was or will
be issued in a transaction registered under the Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, such shares may not be sold
except in transactions registered under the Securities Act or pursuant to an
exemption from registration, including the exemption contained in Rule 144 under
the Securities Act. When these shares become saleable, the market price of the
Common Stock could be adversely affected by the sale of substantial amounts of
the shares in the public market. The current stockholders of the Company have
certain registration rights with respect to their shares. If such former
stockholders, by exercising such registration rights, cause a large number of
shares to be registered and sold in the public market, such sales may have an
adverse effect on the market price of the Common Stock. See "Shares Eligible for
Future Sale."
Upon the closing of this Offering, the Company also will have
outstanding options to purchase up to a total of 925,000 shares of Common Stock
issued pursuant to the Company's 1996 Stock Option Plan (the "Plan"). A total of
1,800,000 shares will be issuable pursuant to such plan. The Company intends to
register all the shares subject to these options under the Securities Act for
public resale. See "Management--1996 Stock Option Plan."
The Company has agreed that it will not offer or sell any shares of
Common Stock or options, rights or warrants to acquire any Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated, except for the grant of employee
stock options and for shares issued (i) in connection with acquisitions and (ii)
pursuant to the exercise of options granted under the Plan. Further, the
Company's directors, officers and certain stockholders who beneficially own
7,123,889 shares in the aggregate have agreed not to directly or indirectly
offer for sale, sell or otherwise dispose of any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated. In addition, the owners of the Founding
Companies have agreed not to sell, contract to sell or otherwise dispose of any
shares of Common Stock received as consideration in the acquisitions for a
period of two years following receipt thereof.
The Company currently intends to file a registration statement
covering up to an additional 4,000,000 shares of Common Stock under the
Securities Act for its use in connection with future acquisitions. These shares
generally will be freely tradeable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale.
The effect, if any, of the availability for sale, or sale, of the
shares of Common Stock eligible for future sale will have on the market price of
the Common Stock prevailing from time to time is unpredictable, and no assurance
can be given that the effect will not be adverse.
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchasers of the shares of
Common Stock offered hereby will experience immediate dilution in the net
tangible book value of their shares of $7.63 per share (assuming an initial
public offering price of $10.00 per share). See "Dilution." In the event the
Company issues additional shares of Common Stock in the future, including shares
which may be issued in connection with acquisitions or other public or private
financings, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of the Common Stock of the
Company.
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<PAGE>
THE COMPANY
PalEx was founded in January 1996 to create a national provider of
pallets and related services. Concurrently with and as a condition to the
closing of this Offering, PalEx will acquire the three Founding Companies. A
brief description of each of the Founding Companies is set forth below.
FRASER. Fraser was founded in 1975 and is a leading manufacturer and
recycler of pallets in the southwestern U.S. Fraser is headquartered in Big
Spring, Texas, has 14 plant locations and employs approximately 850 people.
Fraser has experienced significant growth in the past three years, opening nine
facilities and acquiring two additional facilities. For the twelve months ended
August 31, 1996, Fraser's revenues were $45.1 million, with income from
operations of $4.3 million. Fraser has established a leading presence in the
supply of new and recycled pallets in the Southwest and has developed
significant relationships with CHEP and Wal-Mart Stores, Inc. ("Wal-Mart"),
among others. The services Fraser provides include pallet manufacturing, repair,
sorting, storage and transportation. Troy O. Fraser, the President of Fraser,
has served in such capacity for 21 years and will become the Company's Chief
Development Officer as well as serve on the Company's Board of Directors upon
consummation of the Offering. Mr. Fraser is a Vice President and a two-term
member of the Board of Directors of the National Wooden Pallet and Container
Association (the "NWPCA").
RIDGE. Ridge was founded in 1967 and is a leading manufacturer of
pallets in the southeastern U.S. Ridge's fiscal 1996 revenues were $48.3
million, with income from operations of $4.0 million. Ridge is headquartered in
Bartow, Florida, has five plant locations and employs approximately 500 people.
Ridge's traditional strength has been the manufacture of large volumes of new
pallets for customers who have time-sensitive delivery requirements and demand a
high level of customer service. In addition to its traditional focus on the
manufacture of new pallets, Ridge also builds agricultural harvesting boxes and
specialty bins, and has recently entered the pallet repair and recycling market.
A. E. Holland, Jr. has served as President of Ridge for 16 years and has more
than 25 years experience in the pallet industry. Mr. Holland will become the
Company's Chief Operating Officer as well as serve on the Company's Board of
Directors upon consummation of the Offering. Mr. Holland is a past President and
long-standing member of the Board of Directors of the NWPCA. In addition, each
of the nine members of Ridge's senior management team has in excess of 13 years
of experience in the pallet business, is actively involved in the NWPCA and will
continue to serve the Company from its operational headquarters in Bartow.
INTERSTATE. Interstate was founded in 1979 in Richmond, Virginia and
is recognized as an innovator in pallet recycling services. Interstate has two
facilities and employs approximately 45 people, primarily in the manufacture and
sale of reconstructed wooden pallets. Interstate's fiscal 1996 revenues were
$4.3 million, with income from operations of approximately $900,000. In addition
to the sale of recycled pallets, Interstate has developed pallet management
systems through which Interstate delivers pallets to a customer, retrieves them
for repair after use and redeploys the pallets to the same customer. Interstate
is also an innovator in the sale of wood by-products, including garden mulches
and playground surface materials. Interstate was awarded a special commendation
from the Governor of Virginia recognizing Interstate's commitment to natural
resource conservation for recycling over 50 million pallets since 1980. Stephen
C. Sykes has served as Interstate's President from its inception and will become
a member of the Company's Board of Directors upon consummation of the Offering.
Mr. Sykes is a former President and board member of the NWPCA.
The aggregate consideration to be paid by the Company in the
Acquisitions consists of approximately $4.5 million in cash and 5,910,000 shares
of Common Stock. The consideration to be paid by the Company for the Founding
Companies was determined by negotiations among the Company and representatives
of the Founding Companies. See "Certain Transactions."
PalEx, Inc. was incorporated in Delaware in January 1996. Its
executive offices are located at 3555 Timmons Lane, Suite 610, Houston, Texas
77027, and its telephone number at that address is (713)626-9711.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $27.4 million (approximately $31.6 million if the
Underwriters exercise their over-allotment option in full), assuming an initial
public offering price of $10.00 per share.
Of the net proceeds, the Company estimates that approximately $4.5
million will be used to pay the cash portion of the purchase price for the
Founding Companies, all of which will be paid to former stockholders of the
Founding Companies. In addition, approximately $10.5 million of the net proceeds
will be used to repay estimated outstanding indebtedness of the Founding
Companies at the closing of the Offering. Of that $10.5 million, approximately
$7.0 million is owed to stockholders and affiliates of Ridge, bears interest at
the prime rate (which at August 31, 1996 was 8.25%) and matures January 3, 2000
and approximately $70,000 is owed to an affiliate of Fraser, bears interest at
14.0% per annum and matures in January 2005. The remaining indebtedness to be
repaid from the proceeds of the Offering bears interest at the prime rate (which
at August 31, 1996 was 8.25%) and matures at various dates from April through
June 1997. Approximately $8.3 million of the net proceeds will be used to make
distributions to the former stockholders of the Founding Companies representing
S Corporation earnings previously taxed to such holders. See "Certain
Transactions."
The approximately $4.1 million of remaining net proceeds will be
used for working capital and for general corporate purposes, which are expected
to include future acquisitions. Pending such uses, the Company intends to invest
the net proceeds of the Offering in short-term, investment-grade,
interest-bearing instruments. The Company currently has no binding agreements to
effect any acquisitions. See "Managements's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Combined."
The Company is currently negotiating with a group of commercial
banks to provide the Company with a $35.0 million new credit facility which may
be used for acquisitions, working capital and other general corporate purposes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined."
DIVIDEND POLICY
It is the Company's current intention to retain earnings to finance
the expansion of its business. Any future dividends will be at the discretion of
the Board of Directors after taking into account various factors, including,
among others, the Company's financial condition, results of operations, cash
flows from operations, current and anticipated cash needs and expansion plans,
the income tax laws then in effect and the requirements of Delaware law. In
addition, the new credit facility may prohibit the payment of dividends by the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Combined."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization at August 31, 1996
(i) of the Company on a pro forma basis to give effect to the Acquisitions and
(ii) of the Company, as adjusted, to give effect to both the Acquisitions and
this Offering and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." This table should be read in conjunction with the Unaudited
Pro Forma Combined Financial Statements of the Company and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1996
--------------------------------------------
PRO FORMA(1) AS ADJUSTED
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term obligations(2)....................... $ 2,740 $ 0
================== ==================
Long-term obligations, less current maturities....................... 10,274 602
Stockholders' equity:
Preferred Stock: $0.01 par value, 5,000,000 shares,
authorized; no shares issued and outstanding..................... -- --
Common Stock: $0.01 par value, 30,000,000 shares
authorized; 7,123,889 shares issued and outstanding,
pro forma; and 10,123,889 shares issued and
outstanding, as adjusted.................................... 71 101
Additional paid-in capital........................................... 21,010 48,380
Retained earnings.................................................... 1,665 1,665
------------------ ------------------
Total stockholders' equity....................................... 22,746 50,146
------------------ ------------------
Total capitalization......................................... $ 33,020 $ 50,748
================== ==================
</TABLE>
(1) Combines the respective accounts of PalEx and the Founding Companies as
reflected in the Pro Forma Combined Balance Sheet as of August 31, 1996.
(2) Includes the balance of any amounts drawn under lines of credit.
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<PAGE>
DILUTION
The deficit in adjusted net tangible book value of the Company at
August 31, 1996 was $(3,425,000) or $(0.48) per share after giving effect to the
Acquisitions. "Adjusted net tangible book value per share" is the adjusted
tangible net worth (total tangible assets less total liabilities) of the Company
divided by the number of shares of Common Stock outstanding after giving effect
to the Acquisitions. After giving effect to the sale of the shares of Common
Stock offered hereby (at an assumed price of $10.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses), the pro forma net tangible book value of the Company at August 31,
1996 would have been $23,975,000 or $2.37 per share, representing an immediate
increase in net tangible book value of $2.85 per share to existing stockholders
and an immediate dilution of $7.63 per share to the investors purchasing the
shares in this Offering ("New Investors"). The following table illustrates this
dilution to New Investors:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share......................................... $ 10.00
Net tangible book value per share at August 31, 1996................ $ (0.48)
Increase per share attributable to New Investors.................... 2.85
----------------
Pro forma net tangible book value per share after Offering...................... 2.37
----------------
Net tangible book value dilution per share to New Investors..................... $ 7.63
================
</TABLE>
The following table sets forth as of the date of this Prospectus the
number of shares of Common Stock purchased from the Company, the total
consideration to the Company and the average price per share paid by existing
stockholders (after giving effect to the Acquisitions) and by the New Investors:
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION (1) PER SHARE
---------------- ----------------------- ---------
NUMBER PERCENT AMOUNT PERCENT
------ ------- ------ -------
Existing stockholders 7,123,889 70.4% $ (3,425,000) (12.9)% $(0.48)
New Investors ....... 3,000,000 29.6 30,000,000 112.9 10.00
---------- ------ ------------- ------
Total ... 10,123,889 100.0% $ 26,575,000 100.0%
========== ====== ============= ======
- ---------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before this Offering,
adjusted to reflect: (i) the payment of approximately $4.5 million in cash
to the stockholders of the Founding Companies as part of the consideration
for the Acquisitions; (ii) the distribution of $8.3 million to the
stockholders of the Founding Companies representing S Corporation earnings
previously taxed to such stockholders prior to the Acquisitions; (iii)
payment of $518,000 in financial advisory fees incured by the Founding
Companies in connection with the Acquisitions; (iv) the isuance of 142,500
shares of Common Stock to the Founding Companies' profit sharing plans; and
(v) the transfer of certain non-operating assets to the stockholders of the
Founding Companies with an approximate book value of $210,000 in connection
with the Acquisitions. See "Certain Transactions."
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<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PalEx, Inc. will acquire the Founding Companies simultaneously with
and as a condition to the consummation of this Offering. For financial statement
presentation purposes, however, Fraser has been identified as the "accounting
acquiror." The following selected historical financial data for Fraser as of
November 30, 1995 and August 31, 1996 and for the years ended November 30, 1994
and 1995 and the nine months and twelve months ended August 31, 1996, have been
derived from audited financial statements of Fraser, reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
such data. The selected historical financial data as of November 30, 1992, 1993
and 1994, and the fiscal years ended November 30, 1992 and 1993 and the nine
months ended August 31, 1995, have been derived from unaudited financial
statements of Fraser, which have been prepared on the same basis as the audited
financial statements and, in the opinion of Fraser, reflect all adjustments
consisting of normal recurring adjustments, necessary for a fair presentation of
such data. The following summary unaudited pro forma combined financial data
presents certain data for the Company, adjusted for (i) the Acquisitions, (ii)
the effects of certain pro forma adjustments to the historical financial
statements and (iii) the consummation of this Offering and the application of
the net proceeds therefrom. See the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE
ENDED MONTHS ENDED
YEAR ENDED NOVEMBER 30, AUGUST 31, (1) AUGUST 31,
-------------------------------------------- -------------------- ------------
1992 1993 1994 1995 1995 1996 1996
-------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
FRASER
Revenues .................................. $ 13,110 $ 18,254 $ 23,114 $ 30,135 $ 21,220 $ 36,185 $ 45,100
Gross profit .............................. 2,193 2,286 2,359 4,576 3,325 5,949 7,200
Selling, general and administrative
expenses ............................... 1,971 2,080 1,761 2,131 1,526 2,299 2,904
Income from operations..................... 222 206 598 2,445 1,799 3,650 4,296
Interest expense, net(2)................... (100) (170) (344) (431) (305) (461) (587)
Net income ................................ $ 118 $ 21 $ 248 $ 1,923 $ 1,430 $ 3,021 $ 3,514
======== ======== ======== ======== ======== ======== ===========
PRO FORMA(3):
Revenues.............................................................................................................$ 97,725
Gross profit ........................................................................................................ 15,944
Selling, general and administrative
expenses(4) ...................................................................................................... 6,183
Goodwill amortization(5) ............................................................................................ 834
Income from operations............................................................................................... 8,927
Interest income(expense), net(6) .................................................................................... 23
Net income...........................................................................................................$ 5,196
==========
Net income per share.................................................................................................$ 0.51
==========
Shares used in computing pro forma income per share(7) .............................................................. 10,123,889
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, AS OF AUGUST 31, 1996 AS ADJUSTED
------------------------------------------ ----------------------- AUGUST 31,
1992 1993 1994 1995 ACTUAL PRO FORMA (8) 1996 (9)
-------- -------- --------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FRASER BALANCE SHEET DATA:
Working capital ............................... $ 562 $ 796 $ (2,280) $ 997 $ 1,076 $ (6,136) $ 11,592
Total assets .................................. 4,630 5,018 9,950 12,295 13,059 53,941 57,529
Total debt, including current portion ......... 1,901 3,550 5,787 5,920 3,291 13,014(10) 602
Stockholders' equity .......................... 1,672 1,639 1,887 3,810 6,411 22,746 50,146
</TABLE>
- ------------------------------------
(1) Fraser changed its fiscal year end to August 31 during 1996. As a result,
the fiscal year ended August 31, 1996 represents a nine-month period. The
unaudited income statement data for the nine months ended August 31, 1995
have been presented for purposes of comparison to the nine-month period
ended August 31, 1996. The twelve months ended August 31, 1996 has also
been presented for comparative purposes with prior fiscal periods.
(2) Includes interest expense and other income(expense), net.
(3) The pro forma combined income statement data assume that the Acquisitions
were closed on September 1, 1995 and are not necessarily indicative of the
results the Company would have obtained had these events actually then
occurred or of the Company's future results. During the periods
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<PAGE>
presented above, the Founding Companies were not under common control or
management and, therefore, the data presented may not be comparable to or
indicative of post-combination results to be achieved by the Company. The
pro forma combined income statement data is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate and should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus.
(4) The pro forma combined income statement data include aggregate reductions
of approximately $630,000 in salary and benefits to the owners of the
Founding Companies to which they have agreed prospectively, and the effect
of revisions of certain lease agreements between certain stockholders of
the Founding Companies. See "Certain Transactions."
(5) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 30-year period and computed on the basis described in
the Notes to the Unaudited Pro Froma Combined Financial Statements.
(6) Includes interest income(expense) and other income(expense), net and
reflects the reduction of interest expense attributed to the repayment of
debt with proceeds from the Offering.
(7) Includes (i) 5,910,000 shares to be issued to the owners of the Founding
Companies, (ii) 50,000 shares issued to the management of PalEx, (iii)
1,021,389 shares issued to Main Street, (iv) 3,000,000 shares to be sold in
the Offering and (v) 142,500 shares to be issued to the Founding Companies'
profit sharing plans. Excludes options to purchase 200,000 shares which are
currently outstanding and options to purchase 725,000 shares which are
expected to be granted upon consummation of this Offering. See "Certain
Transactions."
(8) Reflects the Acquisitions as if they had occurred on August 31, 1996 as
described in the Notes to Unaudited Pro Forma Combined Financial
Statements.
(9) Reflects the closing of this Offering and the Company's application of the
net proceeds therefrom to fund the cash portion of the purchase price of
the Acquisitions and to repay indebtedness of the Founding Companies. See
"Use of Proceeds" and "Certain Transactions."
(10) Excludes $11.4 million representing the cash consideration and S
Corporation Accumulated Adjustment Accounts to be paid to the owners of the
Founding Companies with a portion of the net proceeds of the Offering and
computed on the basis described in the Notes to the Unaudited Pro Froma
Combined Financial Statements.
-17-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the
Founding Companies' Financial Statements and related notes thereto and "Selected
Financial Data" appearing elsewhere in this Prospectus.
The Company's net revenues are derived from: (i) the manufacture and
sale of new pallets; (ii) the repair, remanufacture and sale of recycled pallets
and the provision of pallet management services; (iii) the manufacture and sale
of ancillary products, including agricultural harvesting boxes and specialty
bins, and lumber sales; and (iv) sales of by-products, including landscape mulch
and playground material.
New pallets constitute one of two core product lines and accounted
for approximately 65% of the Company's revenues for the twelve months ended
August 31, 1996 on a pro forma basis. Approximately 75% of the cost of a new
pallet is lumber, and new pallet sales prices are strongly influenced by the
cost, availability and type of lumber used. As a result, changes in lumber
prices can significantly impact the Company's revenues and margins. New pallet
manufacturing is generally considered to be a mature industry characterized by
moderate growth rates. Ridge has historically focused on new pallet sales.
The repair, remanufacture and sale of recycled pallets and the
provision of pallet management services accounted for approximately 25% of the
Company's revenues for the twelve months ended August 31, 1996 on a pro forma
basis and constitutes the Company's other core product line. These activities
are more labor intensive and require fewer raw materials than new pallets.
Recycling operations generally generate higher gross profits as a percentage of
revenues. Fraser's repair and recycling services have grown rapidly in the past
three years and Ridge has recently begun to offer such products and services.
Ancillary product and lumber sales accounted for approximately 10%
of the Company's revenues for the twelve months ended August 31, 1996 on a pro
forma basis. Ancillary products include harvesting boxes and specialty bins used
by the agricultural industry and other products. These products are generally
characterized by higher unit sales costs and higher margins than the Company's
core products. Purchases of agricultural harvesting boxes and specialty bins
represent capital expenditures to the Company's customers and can vary
significantly from period to period. In addition, the sale of agricultural
harvesting boxes to the citrus industry in Florida declined from fiscal 1994
through fiscal 1996 as a result of competition from plastic agricultural
containers. The Company expects this competition to continue.
The sale of pallet by-products (generally, landscape mulch and
playground material produced by grinding unusable lumber and scrap) does not
represent a significant portion of the Company's revenues. However, these
products produce significant margins because the raw materials costs have been
recovered from the production of a core or ancillary product. In addition, the
sale of by-product enables the Company to avoid disposal costs for unusable
lumber and scrap. Interstate is regarded as a leading innovator in utilizing and
marketing pallet by-products.
Ridge and Fraser, two of the Founding Companies, manufacture and
repair pallets for CHEP and provide a variety of logistical services with
respect to its existing pallet pool, including the repair, storage and
just-in-time delivery of pallets. CHEP currently does not manufacture pallets
and engages in limited repair operations. During the twelve months ended August
31, 1996, approximately 29% of the Company's pro forma combined revenues and a
significant percentage of the Company's growth were attributable to CHEP, with a
majority of the revenues generated by six of the Fraser facilities opened during
the past two years currently attributable to CHEP. Although the Company sells
products to a broad range of industries, approximately 20% of the Company's pro
forma revenues for the twelve months ended August 31, 1996 were attributable to
the agricultural industries in the southeastern U.S., with the citrus and
produce industries comprising the largest component thereof. The pallet
purchases associated with these industries are highly seasonal with most sales
revenues concentrated in the period from October through May.
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<PAGE>
In August 1994, Ridge purchased its pallet and box manufacturing
business in a management buyout (the "Ridge Buyout") from Ridge Resources, Inc.
("Resources"), a predecessor company owned by three of the stockholders of
Ridge. As consideration for this purchase, Ridge issued notes totaling
approximately $12.6 million to Resources and assumed approximately $1.8 million
of Resources' liabilities. The notes held by Resources and its stockholders are
referred to herein as the "Ridge Notes." A portion of the net proceeds of this
Offering will be used to repay the Ridge Notes. See "Certain Transactions."
The Founding Companies have been managed throughout the periods
presented as independent private companies, and their results of operations
reflect tax structures as S Corporations, which have influenced, among other
things, their historical levels of owners' compensation. Selling, general and
administrative expenses for the periods presented are therefore impacted by the
amount of compensation and related benefits that the former owners and certain
key employees received from their respective businesses during these periods.
These former owners and key employees have agreed to certain reductions in
salaries and benefits in connection with the founding of the Company or the
acquisition of their businesses by the Company.
The Company recognizes revenue upon the delivery of a product or
service to a customer. The Company does not generally maintain significant
finished goods inventory. Cost of sales are predominately variable costs such as
lumber, labor, fasteners, transportation, equipment maintenance and utilities.
Fixed costs in cost of sales include depreciation of equipment, supervisory
labor and direct overhead. Substantially all production employees are paid on a
production or "piecework" basis, which the Company believes provides incentives
for increased productivity.
Selling, general and administrative expenses are generally fixed
costs such as sales, administrative and management salaries and benefits, travel
expenses, professional services, computer costs and office expenses. Many sales,
administrative and managerial employees have variable compensation plans,
although the sales force is not paid a sales commission based on volume of
sales.
RESULTS OF OPERATIONS - COMBINED
The combined results of operations for the periods presented do not
purport to present those of the combined Founding Companies in accordance with
generally accepted accounting principles, but represent merely a summation of
the revenues, cost of sales, gross profit and selling, general and
administrative expenses of the individual Founding Companies on a historical
basis and exclude the effects of pro forma adjustments. This data will not be
comparable to, and may not be indicative of, the Company's post-combination
results of operations because (i) the Founding Companies were not under common
control or management and had different tax structures (S Corporations) during
the periods presented and (ii) the Company will use the purchase method to
establish a new basis of accounting to record the Acquisitions. References to
operations in the southwestern region refer to the operations previously
conducted by Fraser, and references to operations in the southeastern region
refer to operations previously conducted by Ridge.
The following table sets forth certain selected financial data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL PERIODS ENDED(1)
-----------------------------------------------------------------------------
1994 1995 (2) 1996 (2)
----------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $74,540 100.0% $88,357 100.0% $97,725 100.0%
Cost of Sales .......................... 64,129 86.0 75,118 85.0 81,781 83.7
------ ---- ------ ---- ------ ----
Gross profit ....................... 10,411 14.0 13,239 15.0 15,944 16.3
Selling, general and administrative
expenses ........................... 6,039 8.1% 6,120 6.9% 6,813 7.0%
</TABLE>
- -------------------
(1) The fiscal periods above include the following 12 month periods of the
individual Founding Companies: 1994 - Fraser - November 30, Ridge - July
31, and Interstate - August 31; 1995 - Fraser - November 30, Ridge - July
30, and Interstate - August 31; 1996 - Fraser - August 31, Ridge - July 28,
and Interstate - August 31.
(2) Fraser changed its fiscal year end to August 31 during 1996. The financial
data for the year ended November 30, 1995 and the twelve months ended
August 31, 1996 both include the results of Fraser for the three months
ended November 30, 1995 which were as follows: revenues of $8.9 million,
gross profit of $1.3 million and selling, general and administrative
expenses of $605,000.
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<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues increased approximately 10.6% to $97.7 million from $88.4
million. Revenues in the southwestern region increased approximately $15.0
million as a result of the full year effect of revenues generated by five new
facilities opened during 1995, as well as an additional facility opened in 1996.
This increase was offset by a $6.1 million decline in revenues in the
southeastern region generally attributable to both lower average sales prices
and a reduction in sales of agricultural harvesting boxes and specialty bins.
Gross profit as a percentage of revenues increased to 16.3% from
15.0%. This improvement was generally attributable to continued growth in the
southwestern region in repair and recycling operations which are characterized
by lower raw material costs as a percentage of revenues and generally have
higher gross margins than new pallet operations. As a result of additional
revenues, gross profit increased 20.4% to $15.9 million from $13.2 million.
Selling, general and administrative expenses increased 11.3% to $6.8
million from $6.1 million. The increase was attributable to increased selling
and infrastructure costs associated with the opening of facilities in Arkansas,
California, Illinois and Texas.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues increased 18.5% to $88.4 million from $74.5 million.
Approximately one-half of the increase was attributable to the opening of five
new facilities in the southwestern region. The remainder of this increase was
attributable to higher revenues resulting from higher raw material costs which
were generally passed on to customers in the form of higher sales prices,
together with an increase in the quantity of new pallets and agricultural
harvesting boxes and specialty bins sold in the southeastern region.
Gross profit as a percentage of revenues improved to 15.0% from
14.0%. This improvement was generally attributable to growth in the southwestern
region in the repair and recycling operations which are characterized by lower
raw material costs as a percentage of revenue and generally have higher gross
margins than new pallet operations. As a result of additional revenues, gross
profit improved 27.2% to $13.2 million from $10.4 million.
Selling, general and administrative expenses remained stable at $6.1
million.
LIQUIDITY AND CAPITAL RESOURCES - COMBINED
On a combined basis, the Founding Companies generated $9.1 million
of cash from operating activities during 1996. Net cash used in investing
activities was $4.7 million on a combined basis and was primarily used for
purchases of property and equipment. Net cash used in financing activities was
$8.0 million on a combined basis and was primarily used for reductions in long
term debt and for distributions to stockholders.
The Company is currently negotiating with a group of banks to obtain
a credit facility which would be available upon the closing of the Offering.
According to the proposed terms, the Company would have an unsecured revolving
line of credit of up to $35.0 million, which may be used for general corporate
purposes, including post-Offering acquisitions, capital expenditures and working
capital.
The ability of the Company to secure the credit facility is subject
to completion of negotiations with potential lenders as well as the satisfaction
of certain conditions, including the execution of appropriate loan
documentation. In
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<PAGE>
the event the credit facility is not available after this Offering, the Company
believes that sufficient alternative sources of financing will be available on
reasonable terms to the Company.
The Company anticipates that its cash flow from operations will
provide sufficient cash to enable the Company to meet its working capital needs,
debt service requirements and planned capital expenditures for property and
equipment. On a combined basis, the Founding Companies made capital expenditures
of $5.1 million in fiscal 1996.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company expects
to fund future acquisitions primarily through a combination of a portion of the
net proceeds of the Offering, working capital, cash flow from operations and
borrowings, including any unborrowed portion of the proposed credit facility, as
well as issuances of additional equity.
Due to the relatively low levels of inflation experienced in fiscal
1994, 1995 and 1996, inflation did not have a significant effect on the results
of the combined Founding Companies in those fiscal years.
RESULTS OF OPERATIONS - FRASER
The following table sets forth certain selected financial data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, AUGUST 31,
---------------------------------------- ----------------------------------------
1994 1995 1995 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ 23,114 100.0% $ 30,135 100.0% $ 21,220 100.0% $ 36,185 100.0%
Cost of sales .............................. 20,755 89.8 25,559 84.8 17,895 84.3 30,236 83.6
-------- -------- -------- --------
Gross profit ............................ 2,359 10.2 4,576 15.2 3,325 15.7 5,949 16.4
Selling, general and administrative
expenses ................................ 1,761 7.6 2,131 7.1 1,526 7.2 2,299 6.4
-------- -------- -------- --------
Income from operations ..................... 598 2.6 2,445 8.1 1,799 8.5 3,650 10.1
Interest expense ........................... (335) (1.4) (450) (1.5) (345) (1.6) (324) (0.9)
Other income (expense), net ................ (9) 19 40 0.2 (137) (0.4)
-------- -------- -------- --------
Income before tax .......................... 254 1.1 2,014 6.7 1,494 7.0 3,189 8.8
Income taxes ............................... 6 91 0.3 64 0.3 168 0.5
-------- -------- -------- --------
Net income ................................. $ 248 1.1% $ 1,923 6.4% $ 1,430 6.7% $ 3,021 8.3%
======== ======== ======== ========
</TABLE>
NINE MONTHS ENDED AUGUST 31, 1996 COMPARED TO NINE MONTHS ENDED AUGUST 31, 1995
Revenues increased 70.5% to $36.2 million from $21.2 million. The
increase was primarily due to revenues from five facilities opened or acquired
during 1995 and a new facility opened during 1996.
Gross profit as a percentage of revenues increased to 16.5% from
16.4%. The increase in gross profit as a percentage of revenues was generally
attributable to growth in repair and recycling operations which are
characterized by lower raw material costs as a percentage of revenues than new
pallet operations and, generally have higher gross margins than new pallet
operations. Gross profit increased approximately 78.9% to $5.9 million from $3.3
million, primarily as result of increased revenues associated with the new
facilities.
Selling, general and administrative expenses increased 50.7% to $2.3
million from $1.5 million and were generally attributable to additional costs
associated with the facilities opened or acquired during both periods. Because
of the fixed nature of certain selling, general and administrative expenses,
such expenses decreased as a percentage of revenues to 6.4% from 7.2%.
Interest expense remained fairly constant between periods.
Other income (expense), net changed to a net expense of $137,000
from income of $40,000 due primarily to a casualty loss.
-21-
<PAGE>
Income before taxes increased to $3.2 million from $1.5 million.
TWELVE MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO TWELVE MONTHS ENDED NOVEMBER
30, 1994
Revenues increased by 30.4% to $30.1 million from $23.1 million and
primarily reflected the opening of five new repair facilities in 1995.
Gross profit as a percentage of revenues increased to 15.2% from
10.2%. The increase in gross profit as a percentage of revenues was generally
attributable to growth in repair and recycling operations which are
characterized by lower raw material costs as a percentage of revenues than new
pallet operations and generally have higher gross margins than new pallet
operations. Gross profit increased approximately 94.0% to $4.6 million from $2.4
million, also as a result of lower raw material costs and additional revenues.
Selling, general and administrative expenses increased 21.0% to $2.1
million from $1.8 million. The increase in operating expenses was primarily
attributable to increased infrastructure costs associated with the additional
facilities opened in 1995.
Interest expense increased to $450,000 from $335,000. The increase
was generally attributable to higher interest expense necessary to fund working
capital needs associated with the new facilities opened in 1995.
Income before taxes increased to $2.0 million from $254,000.
LIQUIDITY AND CAPITAL RESOURCES - FRASER
The Company generated $4.9 million in net cash from operations for
the twelve months ended August 1996. Net cash used in investing activities was
approximately $3.2 million, principally for the purchase of property and
equipment related to the opening of new facilities. Net cash used in financing
activities was $1.7 million in 1996, principally for the repayment of long-term
debt.
RESULTS OF OPERATIONS - RIDGE
The following table sets forth certain selected financial data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------------------------------------- ---------------------------------------
JULY 31, 1994 JULY 30, 1995 JULY 28, 1996 OCTOBER 29, 1995 OCTOBER 27, 1996
----------------- ----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues .................... $ 47,946 100.0% $ 54,450 100.0% $ 48,341 100.0% $ 10,499 100.0% $ 10,059 100.0%
Cost of sales ............... 40,606 84.7 46,388 85.2 40,540 83.9 9,024 86.0 9,171 91.2
-------- -------- -------- -------- --------
Gross profit ............. 7,340 15.3 8,062 14.8 7,801 16.1 1,475 14.0 888 8.8
Selling, general and ........
administrative expenses 4,018 8.4 3,826 7.0 3,825 7.9 1,033 9.8 985 9.8
-------- -------- -------- -------- --------
Income from operations ...... 3,322 6.9 4,236 7.8 3,976 8.2 442 4.2 (97) (1.0)
Interest expense ............ (80) (0.2) (962) (1.8) (1,032) (2.1) (267) (2.5) (192) (1.9)
Other income (expense), net . 922 1.9 101 0.2 199 0.4 64 (0.6) 20 0.2
-------- -------- -------- -------- --------
Income (loss) before tax .... 4,164 8.7 3,375 6.2 3,143 6.5 239 2.3 (269) (2.7)
Income taxes (benefit) ...... 99 0.2 83 0.2 76 0.2 6 0.1 (6) 0.1
-------- -------- -------- -------- --------
Net income(loss)............. $ 4,065 8.5% $ 3,292 6.0% $ 3,067 6.3% $ 233 2.2% $ (263) (2.6)%
======== ======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED OCTOBER 27, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 29,
1995
Revenues declined 4.2% to $10.1 million from $10.5 million.
Approximately one-half of this decrease resulted from a 3.2% decline in the
average sales price of new pallets. The remainder of the decrease was
attributable to a 50.0% decline in revenues from sales of agricultural
harvesting boxes largely as a result of competition from plastic agricultural
containers.
-22-
<PAGE>
Gross profit as a percentage of revenues declined to 8.8% from
14.0%, primarily as a result of lower average sales prices for new pallets and
fewer new pallets sold. Raw material costs were approximately $400,000 higher in
1996 than in 1995 and were not generally passed on to customers due to
competitive pressures. Higher raw material costs were partially offset by
reductions in manufacturing costs as a result of improved operational
efficiencies. As a result of lower revenues, gross profit declined approximately
39.8% from $1.5 million to $888,000.
Selling, general and administrative expenses remained relatively
stable at approximately $1.0 million.
Interest expense declined 28.1% to $192,000 from $267,000 as a
result of the repayment of a portion of the Ridge Notes.
Income before taxes declined to a loss of $269,000 from income of
$239,000.
TWELVE MONTHS ENDED JULY 28, 1996 COMPARED TO TWELVE MONTHS ENDED JULY 30, 1995
Revenues declined 11.2% to $48.3 from $54.4 million. Approximately
one-half of this decline was attributable to a 7.7% decrease in the average
sales price of new pallets, a decrease which reflects lower raw material costs,
a portion of which were passed on to customers in the form of lower sales
prices. The balance of the decline was attributable both to fewer new pallets
sold as a result of smaller citrus and produce harvests and to a decrease in
sales of agricultural harvesting boxes largely as a result of competition from
plastic agricultural containers.
Gross profit as a percentage of revenues improved to 16.1% from
14.8%. The increase in gross profit percentage was generally attributable to
declining raw material costs. Labor and maintenance costs declined $600,000 as a
result of improved efficiencies. As a result of lower revenues, gross profit
declined 3.2% to $7.8 million in 1996 from $8.1 million in 1995.
Selling, general and administrative expenses remained constant at
$3.8 million in 1996 and 1995. Despite lower production volumes, the Company
maintained its sales force, infrastructure and quality assurance training
programs in anticipation of improving market conditions and future growth.
Interest expense increased 7.3% to $1.0 million from $962,000 as a
result of an increase in interest rates, partially offset by the repayment of a
portion of the Ridge Notes. Other income (expense), net includes interest income
on invested cash and cash equivalents and increased to $199,000 from $101,000
due to higher levels of cash equivalents available for investment.
Income before tax decreased 6.9% to $3.1 million from $3.4 million.
TWELVE MONTHS ENDED JULY 30, 1995 COMPARED TO THE TWELVE MONTHS ENDED JULY 31,
1994
Revenues increased 13.6% to $54.4 million from $47.9 million.
Approximately $2.8 million of the increase was attributable to a 7.2% increase
in the average sales price of new pallets, an increase which reflects higher raw
material costs, which were generally passed on to customers in the form of
higher sales prices, as well as an increase in the volume of new pallets sold to
CHEP. The remainder of the increase was attributable to a significant increase
in revenues from the sale of specialty agricultural bins which more than offset
declining revenues from agricultural harvesting boxes attributable to
competition from plastic agricultural containers.
Gross profit as a percentage of revenues declined to 14.8% from
15.3%. The decrease in a gross profit as a percentage of revenues was generally
attributable to higher raw material costs, including a $4.6 million increase in
lumber costs and a $695,000 increase in fastener costs.
Selling, general and administrative expenses decreased to $3.8
million from $4.0 million as a result of salary reductions in connection with
the Ridge Buyout.
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<PAGE>
Interest expense increased to $962,000 from $80,000 as a result of
the issuance of the Ridge Notes as consideration in the Ridge Buyout.
Other income (expense), net in 1994 includes a gain of approximately
$631,000 resulting from the cancellation of deferred compensation agreements in
connection with the Ridge Buyout. Interest income also declined to $131,000 from
$276,000 as a result of lower levels of invested cash and cash equivalents
during the period.
Income before tax decreased 19.0% to $3.4 million from $4.2 million.
LIQUIDITY AND CAPITAL RESOURCES - RIDGE
The Company generated $4.4 million of net cash from operating
activities during fiscal year 1996. Net cash used in investing activities was
approximately $1.7 million and was expended primarily for purchases of property
and equipment. Net cash used in financing activities was $5.7 million during
1996 and was primarily used for distributions to stockholders and repayment of
the Ridge Notes and long-term debt.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Seasonality in the Company's results of operations varies by region.
The southeastern region has a significant number of agricultural customers and
typically experiences greater demand during harvesting periods (October through
May) with less demand in the summer months. Facilities in the southwestern
region supplying agricultural customers can experience similar fluctuations. The
Company's locations serving predominantly manufacturing and industrial customer
bases experience significantly less seasonality. Quarterly results may also be
materially affected by the timing of acquisitions and the timing and magnitude
of acquisition assimilation costs. Accordingly, the operating results for any
three-month period are not necessarily indicative of the results that may be
achieved for any subsequent fiscal quarter or for a full fiscal year.
INFLATION
Inflation has not had a material impact on the Company's results of
operations for the last three years.
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<PAGE>
BUSINESS
PalEx was formed in January 1996 to create a national provider of
pallets and related services. Concurrently with the closing of this Offering,
PalEx will acquire three of the leading U.S. pallet businesses, making it the
largest producer of new pallets and one of the largest pallet recyclers in the
U.S. The Company believes that these acquisitions will enable it to capitalize
on the significant trends currently affecting product manufacturing and
distribution practices throughout the U.S., including the increasing reliance by
shippers and logistics agents on a smaller number of better capitalized, more
sophisticated vendors. The Company will provide a broad complement of pallet
products and related services, including the manufacture and distribution of new
pallets; the recycling of pallets (including used pallet retrieval, repair,
remanufacture and secondary marketing); maintenance of depot operations and the
sorting and storage of pallets for selected customers; and the processing and
marketing of various wood-based by-products derived from pallet recycling
operations. The Company will initially operate from 21 facilities in Florida,
Texas, Virginia, California, Arkansas, Georgia, Illinois, Mississippi and South
Carolina. For its fiscal year ended August 31, 1996, the Company generated pro
forma combined revenues, income from operations and net income of $97.7 million,
$8.9 million and $5.2 million, respectively. Ridge and Fraser, two of the
Founding Companies, are currently among the largest pallet businesses in the
U.S., based on revenues, and Interstate is regarded in the pallet industry as a
leading developer of pallet recycling services and products. The Company intends
to actively pursue acquisitions of additional leading pallet companies as part
of its growth strategy.
INDUSTRY OVERVIEW
Based on information supplied by industry sources, the Company
estimates that the U.S. pallet industry generated revenues of approximately $5
billion in 1995 and that it is served by approximately 3,600 companies, most of
which are small, privately held entities operating in only one location which
serve customers within a limited geographic radius. The industry is generally
composed of companies that manufacture new pallets and companies that repair and
recycle pallets. The Company estimates that the size of the new pallet and
recycled pallet markets were approximately $3 billion and $2 billion,
respectively, in 1995. The Company estimates, based on industry sources that
during 1995 approximately 450 million new wooden pallets were produced. The
Company estimates there are more than two billion pallets in circulation in the
U.S. today.
A pallet is a platform, usually made of wood, that is used for
storing and shipping goods. Pallets are used in virtually all U.S. industries
whose products are broadly distributed, including the automotive, chemical,
consumer products, grocery, produce and food production, paper and forest
products, retailing, and steel and metals industries. Pallets come in a wide
range of shapes and sizes. Although pallets are primarily made of wood, they may
also be made from steel, plastic, cardboard, molded wood fiber and other
materials to satisfy smaller niche markets. The Company believes that there are
over 1,000 different sizes and specifications of pallets used in North America.
The grocery industry, however, which accounts for approximately one-third of all
new pallets produced, uses a standard size 48" x 40" pallet, although many
different styles and specifications are manufactured for use in that industry.
Other industries utilize specifications which are appropriate for their
particular needs. Based on information supplied by industry sources, the Company
believes that in 1995 over 90% of the pallets used were of the traditional
wooden type, fabricated from lumber and metal fasteners. The wooden pallet has
traditionally been the basis for the design of storage racks, warehouse storage
areas, forklifts, docks and containers used in shipping goods.
The pallet industry has experienced significant changes and growth
during the past several years. These changes are due, among other factors, to
the focus by FORTUNE 1000 businesses on improving the logistical efficiency of
their manufacturing and distribution systems. This focus has caused many of
these businesses to attempt to reduce significantly the number of vendors
serving them in order to simplify their procurement and product distribution
processes. It has also prompted large manufacturers and distributors to
outsource key elements of those processes that are not within their core
competencies and to develop just-in-time procurement, manufacturing and
distribution systems. With the adoption of these systems, expedited product
movement has become increasingly important and the demand for a high quality
source of pallets has increased. Palletized freight facilitates movement through
the supply chain, reducing costly loading and unloading delays at distribution
centers and warehouse facilities. However, the use of low-quality or improperly
sized pallets may increase the level of product damage during shipping or
storage. As a result, there
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<PAGE>
has been an increased demand for high-quality pallets in an attempt to reduce
product damage during shipping and storage.
The broad changes affecting U.S. industry have created significant
demand for higher quality pallets distributed through an efficient, more
sophisticated system. Environmental and cost concerns have also accelerated the
trend toward increased reuse or "recycling" of previously used pallets, further
increasing the importance of the quality of newly manufactured pallets. In
recognition of these trends, CHEP has established a national pallet leasing
program that provides high-quality pallets to customers throughout the U.S. for
a daily fee. CHEP is a partnership created by Brambles Industries Limited, an
Australian publicly-held corporation, and GKN, Ltd., a publicly-held U.K.
corporation. Ridge and Fraser, two of the Founding Companies, manufacture and
repair pallets for CHEP and provide a variety of logistical services with
respect to its existing pallet pool, including the repair, storage and
just-in-time delivery of pallets. CHEP currently does not manufacture pallets
and engages in limited repair operations. During the twelve months ended August
31, 1996, approximately 29% of the Company's pro forma combined revenues and a
significant percentage of the Company's growth were attributable to CHEP. The
Company expects to continue to build its relationship with CHEP both
geographically and by providing additional logistical services.
CHEP's pallet leasing system represents a significant change in the
U.S. pallet market. CHEP leases a high quality, standardized and easily
identifiable (all CHEP pallets are painted blue) 48" x 40" pallet, primarily for
use by grocery and consumer products customers. CHEP pallets are manufactured to
strict specifications by vendors, including the Company, that have been selected
based on their ability to provide large volumes of pallets manufactured to CHEP
specifications in a timely manner. The advantages CHEP offers to its customers
are high-quality, uniform pallets and just-in-time delivery capabilities.
STRATEGY
The Company's goal is to become a leading national provider of
pallets and related services by pursuing an aggressive acquisition strategy and
by continuing to expand its existing operations.
GROWTH THROUGH ACQUISITIONS. The Company intends to actively pursue
acquisitions of leading companies of which the management and operating
philosophies are complementary to those of the Founding Companies. The Company
also intends to expand within its existing markets through "tuck-in"
acquisitions to expand its market penetration as well as to provide a broader
range of services to existing customers in those markets. These tuck-in
acquisitions will generally consist of smaller pallet companies whose operations
can be incorporated into the Company's existing operations without a significant
increase in infrastructure.
INTERNAL GROWTH. The Company has opened nine new locations in the
past three years and expects to open additional locations in the future. The
Company intends to expand the service offerings at many of its locations to
include a combination of manufacturing, repair, recycling and the sale of
by-products. The Company also expects to be able to accelerate the internal
growth of the Founding Companies and businesses acquired in the future by
continuing to develop the Company's relationship with CHEP and other large
customers and by developing and implementing a "best practices" program.
PalEx believes that a significant market opportunity exists for a
company that can consistently offer high-quality pallets and related value-added
services to large pallet users in the U.S. The Company believes that the
prominence and operating strength of the Founding Companies and the experience
of its executive management will provide the Company with a significant
competitive advantage as it pursues its growth strategy.
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DESCRIPTION OF SERVICES
NEW PALLET MANUFACTURING. New pallet manufacturing represents
approximately 65% of the Company's revenues. The manufacturing process for new
pallets at each of the Company's facilities is generally the most capital
intensive part of the business, with the majority of assembly and construction
being automated. New pallets are manufactured from an assortment of wood
products, varying in type and quality, with construction specifications being
determined by the pallet's end use. The Company believes that approximately 70%
of the wood used in new pallets manufactured in North America is hardwood
(including, oak, poplar, alder and gum) with the balance consisting of pine or
other softwoods.
The Company utilizes sawing equipment which cuts large wood sections
to specification. The cut wood is then transported to assembly points where
employees load the side boards ("stringers") and deck boards into nailing
machines which nail the pallets together. A typical nailing machine can produce
an average of 150 pallets per hour with three to five employees. After
construction is completed, pallets are transported to a stacker for shipment or
storage. More customized or smaller orders may be manufactured by hand on
assembly tables utilizing two laborers with pneumatic nailers. The Company
typically manufactures pallets upon receipt of customer orders and does not
generally maintain significant finished goods inventory.
REPAIR, REMANUFACTURE AND RECYCLING. A large portion of new pallets
is currently discarded by pallet users after one trip. However, pallets can be
recovered, repaired, if necessary, and reused. In addition, used pallets which
are beyond repair can be disassembled and the recovered lumber can be reused in
repairing used pallets. Pallet repair and recycling operations are initiated
with the retrieval or purchase of used pallets from a variety of sources. The
condition and size of these pallets vary greatly. Once obtained, the pallets are
sorted by size and condition. A portion of the pallets may require no repair and
can be resold or returned immediately. Pallets that can be repaired have their
damaged boards replaced with salvaged boards or boards from new stock
inventoried at the facility. Pallets that cannot be repaired are dismantled and
the salvageable boards are recovered for use in repairing and building other
pallets. The remaining damaged boards are typically ground into wood fiber,
which is sold for use as landscaping mulch, fuel, animal bedding, gardening
material and other uses. Despite recent increases in levels of automation,
pallet recycling remains a labor intensive process.
PALLET MANAGEMENT. Pallet management is the process of providing a
combination of services related to a customer's pallet usage, including the
manufacture, repair, retrieval, delivery and storage of pallets as well as the
disposal of unusable pallets and component parts. In a typical arrangement, the
Company will contract with a customer to remove all pallets from a particular
location and transport them back to the Company's repair facility. The pallets
are sorted and repaired as needed and sold to a third party, returned to either
the customer or his supplier, or placed in storage and made available for return
to service ("depot services"). In a typical arrangement, the Company will
contract with a customer to perform any or all of the management services
available. Both Fraser and Interstate have developed such programs and believe
that they may provide a source of additional revenues when applied throughout
the Company.
PROPERTY AND EQUIPMENT
At November 30, 1996, the Company maintained 21 facilities. Most of
the Company's facilities offer more than one service. Of the Company's
facilities, 6 are owned and 15 are leased. The Company's corporate headquarters
are located in Houston, Texas. The paragraphs below summarize the Company's
primary operating facilities.
BENTONVILLE, ARKANSAS. The Bentonville facility was established in
1994, currently has a work-force of approximately 22 employees and serves as a
depot for CHEP pallets as well as a repair facility for Wal-Mart pallets. The
Bentonville facility also sells repaired pallets to the grocery, agricultural
and poultry industries.
CLARKSVILLE, ARKANSAS. The Clarksville facility initiated operations
in 1995 and currently has 3 employees. The facility was initially operated as a
repair facility and currently serves only as a CHEP depot.
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FOREMAN, ARKANSAS. The Foreman plant was purchased in 1982 and
currently has approximately 15 employees. The facility produces pine lumber for
use in the construction of pallets at various of the Company's manufacturing
facilities.
MENA, ARKANSAS. The Mena facility was purchased in 1994 and
currently has approximately 21 employees. The saw mill located on the facility
processes lumber for use at the Company's manufacturing facilities in New
Boston, Texas as well as for sale to third parties.
MULBERRY, ARKANSAS. The Company's Mulberry plant was purchased in
1992 and currently has approximately 91 employees. The Mulberry facility
manufactures new pallets for the grocery and manufacturing industries in
Oklahoma and Arkansas and also produces cut stock for use in the Company's
manufacturing facilities.
SEARCY, ARKANSAS. The Searcy facility was purchased in 1994 and
currently employs approximately 35 workers. The Searcy facility serves as a
depot and repair facility for CHEP pallets as well as a repair facility for
Wal-Mart pallets. The Searcy facility also sells repaired pallets to the
grocery, agricultural and poultry industries.
TRACY, CALIFORNIA. The Company's operations in the San Francisco Bay
area were established in 1995 to serve as a CHEP depot and repair facility. The
facility currently employs 137 workers and the Company anticipates that it will
begin operations as a non-CHEP repair facility in the future.
BARTOW, FLORIDA. The Company's Bartow facility was established in
1967 and currently employs approximately 150 workers. Citrus and produce
distributors are the Bartow facility's largest customers, and the plant produces
a broad variety of new pallets as well as agricultral harvesting boxes and
specialty bins, in many instances custom designed to customer specifications.
HOMELAND, FLORIDA. The Homeland plant was established in 1983 and
currently employs approximately 70 workers. The Homeland facility produces both
new and recycled pallets, primarily for industrial use, and also processes
lumber by-product for sale as landscaping mulch.
HAZLEHURST, GEORGIA. The Hazlehurst facility was established in 1977
and currently employs approximately 75 workers. The Hazlehurst facility produces
new pallets for CHEP, with additional non-CHEP production sold to general
industrial accounts.
SMARR, GEORGIA. The Smarr facility was established in 1992 and is on
the site of a sawmill which provides raw material for its operations as well as
lumber for the Bartow facility. The plant currently employs approximately 60
workers and sells production both to local industrial customers as well as to
the Company's Florida customers during peak produce and citrus harvesting
seasons.
EAST ST. LOUIS, ILLINOIS. The Company established its East St. Louis
operation in 1995 as a CHEP repair facility. The facility currently employs 40
workers and the Company anticipates adding non-CHEP repair operations to the
facility in the future.
WALTERBORO, SOUTH CAROLINA. The Company's Walterboro plant currently
employs approximately 60 workers and provides new pallets to local industrial
accounts and also supplements the Bartow facility's sales to agricultural and
industrial customers during peak seasons. The facility has been recently updated
to manufacture CHEP pallets.
HORN LAKE, MISSISSIPPI. The Company opened the Horn Lake facility
(located in the Memphis, Tennessee metropolitan area) in October 1996 and
currently employs a work-force of approximately 11 workers. This facility serves
as both a CHEP depot and repair and recycling facility for non-CHEP pallets. The
facility's customers are primarily manufacturing facilities in and around
Memphis.
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AMARILLO, TEXAS. The Company produces new and remanufactured pallets
in its Amarillo facility which was established in 1976 and which currently
employs approximately 26 workers. The Amarillo facility's primary customers are
the manufacturing and beef packing industries of North Texas.
BIG SPRING, TEXAS. The Company's Big Spring facility initiated
operations in 1977 and employs approximately 19 workers, primarily in the
production of new pallets. The facility services several West Texas oil and
chemical companies.
FORT WORTH, TEXAS. The Company's facility in Fort Worth opened in
February 1996 and currently employs approximately 117 workers. The Fort Worth
facility was established to provide CHEP depot and repair operations. The
Company currently anticipates expanding into non-CHEP pallet repairs in the
future.
NEW BOSTON, TEXAS. The New Boston location opened in 1994 as the
Company's largest facility in Texas with approximately 247 employees. The New
Boston facility manufactures new and repaired pallets. The plant serves
customers in Texas, Oklahoma, Arkansas and Louisiana.
SAN ANTONIO, TEXAS. The Company supplies its South Texas customers
from its location in San Antonio. This facility, opened in 1995, is a CHEP depot
and repair facility and also repairs pallets for a large regional grocery chain.
The plant currently employs approximately 91 people.
TEMPLE, TEXAS. The Temple location was established in 1995 and
currently employs approximately 26 workers. The Temple facility serves as a CHEP
depot and repair facility as well as a repair facility for Wal-Mart pallets. The
facility also repairs pallets for sale to central Texas grocery, manufacturing
and medical industry customers.
RICHMOND, VIRGINIA. The Company currently employs approximately 45
workers in two facilities located in Richmond, Virginia. Repair and recycling of
used pallets constitutes a significant portion of the operations of these
facilities which also offer pallet management systems to local industrial
customers. The Richmond facilities are also engaged in the manufacture of
landscape mulch, playground surfaces and other innovative applications of pallet
by-products.
The Company believes that its properties are generally adequate for
its present needs. Furthermore, the Company believes that suitable additional or
replacement space will be available when required.
OPERATIONS
The Company will centralize its consolidated financial reporting,
cash management, training, human resources, safety and merger and acquisition
activities. The Company intends to otherwise operate on a regional basis, with
the management of each operating location responsible for its day-to-day
operations, profitability and growth. Local management will utilize the
Company's "best practices" program which seeks to replicate the Founding
Companies' best practices throughout the entire Company with respect to new
pallet manufacturing, pallet repair and recycling techniques, transportation and
other logistical activities, worker training and participation programs,
financial controls and purchasing information in order to improve productivity,
lower operating costs and improve customer satisfaction to stimulate internal
growth.
SALES AND MARKETING
The Company currently sells to customers within its various
geographic locations. The primary sales and marketing activities involve direct
selling by the Company's sales force and by members of senior management to
local and regional customers at the plant level and to large accounts and target
industries more broadly on a geographic basis. Since pricing is a function of
regional lumber and delivery costs, pricing is established at the regional
level.
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Because many of customers developed locally have the need for
similar services on a national scale, the Company is developing a national sales
and marketing plan to provide such services at many locations throughout the
U.S. The Company's network of facilities will allow these customers to: (i)
centralize purchases of new and recycled pallets; (ii) obtain convenient and
dependable service and a consistent supply of uniform quality pallets; (iii)
achieve greater efficiencies in their pallet use; and (iv) meet corporate
recycling goals. The Company has developed relationships with several national
customers and intends to attempt to provide service to these and numerous other
customers on a local, regional and national basis. The pallet needs of national
companies are not uniform and the Company intends to tailor its national
programs for each customer. These programs include a combination of sourcing,
retrieving, repairing and recycling pallets according to individual customer
requirements.
CUSTOMERS
The Company seeks to efficiently serve large numbers of customers
across diverse markets and industries to provide a stable and diversified base
for ongoing sales of products and services. Customers include companies in the
automotive; chemical; consumer products; grocery; produce and food production;
paper and forest products; retailing; and steel and metals products industries
and are both regional and national in scale. For the pro forma twelve-month
period ended August 31, 1996, the Company sold pallets to over 800 customers,
with CHEP accounting for approximately 29% of the Company's pro forma combined
revenues. No other single customer accounted for 10% or more of the Company's
revenues. Because a significant part of the Company's products are sold to the
produce, citrus, beef and tobacco industries, the Company's sales volumes in
certain regions tend to be seasonal.
MANAGEMENT INFORMATION AND CONTROLS
The Company will centralize its consolidated accounting and
financial reporting activities at its operational headquarters in Bartow,
Florida, while basic accounting activities will be conducted at the regional
level. The Company believes that its current information systems hardware and
software are adequate to meet current and perceived needs for financial
reporting and internal management control information and other necessary
information. The Company believes this system will enhance its ability to: (i)
monitor each regional operation; (ii) prepare both operations and capital asset
budgets and budget variances; (iii) assimilate newly acquired operations into
its network through standard reporting mechanisms; (iv) implement operational
and productivity measurements and benchmarking; and (v) conduct individual
customer profitability analyses.
RAW MATERIALS
The primary raw materials used in new pallet manufacturing are
lumber and plywood, which in fiscal 1995 represented 95% of raw material costs
and approximately 50-55% of the Company's revenues. Fraser and Ridge have both
developed long-term relationships with its lumber and plywood vendors and the
Company believes that these relationships, as well as the Company's ability to
pursue larger volume purchases, will help to ensure adequate lumber supplies at
competitive prices in the future. During the twelve months ended August 31,
1996, the Company purchased lumber and plywood from over 85 vendors. Two of
these vendors accounted for 16% and 12%, respectively of the Company's total
lumber purchases during the twelve months ended August 31, 1996. The Company
does not believe that the loss of either of these vendors would materially
adversely affect its financial condition or results of operations. The Company
intends to continue to pursue a strategy of purchasing and upgrading low grade
and alternative sources of lumber as well as exploiting pricing aberrations and
market trends to take advantage of lower prices in the marketplace as they
occur.
Pallet prices are closely related to the changing costs and
availability of lumber, the principal raw material used in the manufacture and
repair of wooden pallets. Typically, lumber prices fall significantly in
oversupplied lumber markets, enabling small pallet manufacturers with limited
capital resources to procure lumber and initiate production of low-cost pallets,
significantly depressing pallet prices overall and adversely affecting the
Company's operating margins. While the Company believes that it will benefit
from strong relationships
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with multiple lumber suppliers, there can be no assurance that the Company will
be able to secure adequate lumber supplies in the future. Lumber supplies and
costs are affected by many factors outside the Company's control including,
weather, governmental regulation of logging on public lands, lumber agreements
between Canada and the U.S. and competition from other industries that use
similar grades and types of lumber. The Company tries to take advantage of the
price volatility of lumber by buying additional quantities of lumber when prices
are favorable and storing the inventory for later use. The Company also is able
to buy low quality lumber and upgrade such lumber at its own plants. Though the
Company has studied the broad use of alternative materials for the manufacture
of pallets, such as plastic, it believes that there is not currently an
available alternative raw material that possesses the tensile strength,
recyclability and low cost of wood. The Company continues to evaluate
alternatives to wood and is receptive to their future use in pallet production.
The Company sources the majority of its pallets for reconstruction
from businesses that use pallets and from trucking companies. Businesses that
receive and ship a significant amount of goods are generally good sources for
used pallets. Often the pallets they receive are damaged or do not meet their
size or other specifications for internal systems or shipping. As a result,
these businesses accumulate pallets that can be recycled. The Company identifies
these sources through establishing relationships with pallet users, and by
direct solicitation, telemarketing and advertising. The Company generally
achieves timely pallet removal by placing a trailer at a source which loads
unwanted pallets onto the trailer. The Company then removes the load of pallets
at the same time it delivers recycled pallets to the company. In some cases, the
Company is paid a tipping fee for hauling away the used pallets or is allowed to
take the pallets away at no charge, and, in other cases, the Company buys the
pallets.
COMPETITION
The Company believes that the principal competitive factors in the
pallet industry are price, quality of services and reliability. With over 3,600
industry participants, the pallet manufacturing industry has been and is
expected to remain extremely fragmented and highly competitive. While there are
several companies which have attempted to establish national pallet operations,
most of the Company's competitors are privately held companies that operate in
only one location and serve customers within a limited geographic radius.
Competition on pricing is often intense and the Company may face increasing
competition from pallet leasing or other pallet systems providers, which are
marketed as less expensive alternatives to new pallet purchasers. CHEP's pallet
leasing system competes with new pallet sales to the grocery and wholesale
distribution industries, and may expand into other industries in the future. In
addition, pallet manufacturing and recycling operations are not highly capital
intensive and the barriers to entry in such businesses are minimal. Certain
other smaller competitors may have lower overhead costs and consequently, may be
able to manufacture or recycle pallets at lower prices than the Company. Other
companies with significantly greater
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capital and other resources than the Company (including CHEP) may enter or
expand their operations in the pallet manufacturing and recycling businesses in
the future, changing the competitive dynamics of the industry. The Company has
in the past and will continue to compete with lumber mills in the sale of new
pallets. The lumber mills typically view pallet manufacturing as an opportunity
to use the lower grade lumber that would otherwise be waste for the mill. While
the Company estimates, based on industry sources, that non-wooden pallets
currently account for less than 10% of the pallet market, there can be no
assurance that the Company will not face increasing competition from pallets
fabricated from non-wooden components in the future. Ridge currently sells
agricultural harvesting boxes. These products have recently faced increasing
competition from plastic agricultural containers which has reduced the number of
agricultural harvesting boxes sold by Ridge. The Company expects competition
with plastic agricultural containers to continue in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LITIGATION
Each of the Founding Companies has, from time to time, been a party
to litigation arising in the normal course of its business, most of which
involves claims for personal injury or property damage incurred in connection
with its operations. Management believes that none of these actions will have a
material adverse effect on the financial condition or results of operations of
the Company.
EMPLOYEES
At November 30, 1996, the Company had approximately 1,400 employees.
The Company is not a party to any collective bargaining agreements. The Company
believes that its relationship with its employees is satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors, executive officers and certain key employees, and those persons who
will become directors and executive officers in connection with this Offering:
NAME AGE POSITION
---- --- --------
Vance K. Maultsby, Jr... 44 Chief Executive Officer and President
A. E. Holland, Jr....... 47 Chief Operating Officer, Director
Troy O. Fraser.......... 47 Chief Development Officer, Director
Casey A. Fletcher....... 42 Chief Accounting Officer and Secretary
Stephen C. Sykes........ 52 President--Interstate Pallets, Director
Tucker S. Bridwell...... 44 Director(1)(2)
John E. Drury .......... 51 Director(1)(2)
Sam W. Humphreys ....... 36 Director(1)(2)
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(1) Member of audit committee.
(2) Member of compensation committee.
Directors are elected at each annual meeting of stockholders. All
officers serve at the discretion of the Board of Directors, subject to terms of
their employment agreement terms. See "--Employment Agreements."
VANCE K. MAULTSBY, JR. became Chief Executive Officer and President
of the Company in December 1996. From 1993 to 1996, Mr. Maultsby was a partner
with Ernst & Young LLP in the Dallas, Texas office where he managed the Dallas
office of its Corporate Finance Group. From 1989 to 1992, Mr. Maultsby was chief
executive officer of Alemar Financial Company (later Alemar Cost Reduction,
Inc.) which provided financial advisory services to a variety of industries.
From 1985 to 1989, Mr. Maultsby was an officer in the Corporate Finance Group
for Stephens Inc., an investment banking firm. Prior thereto, Mr. Maultsby was a
partner with KPMG Peat Marwick, served as the National Director of its Petroleum
Industry Practice, was co-director of its Southwest Area Mergers and
Acquisitions Advisory Practice and practiced public accounting for more than
five years. Mr. Maultsby is a Certified Public Accountant.
A. E. HOLLAND, JR. will become Chief Operating Officer and a
director of the Company upon the closing of this Offering. Mr. Holland has over
25 years of experience in the pallet industry. Mr. Holland has been associated
with Ridge since 1969 and has served as President of Ridge since 1980. Mr.
Holland has served on the Board of Directors of the NWPCA and was President of
NWPCA from 1990 to 1991. Mr. Holland has served the Florida Chamber of Commerce
as Treasurer, Chairman of the Finance Committee and member of the State
Strategic Planning Committee.
TROY O. FRASER will become Chief Development Officer and a director
upon the closing of this Offering. He became President of Fraser in 1975 when he
purchased the business with his two brothers from his father. In 1988, Mr.
Fraser was elected to the Texas House of Representatives where he served three
terms, and was named the National Republican Legislator of the Year in 1991. In
November 1996, Mr. Fraser was elected to the Texas State Senate. Mr. Fraser is
currently Vice President of the NWPCA and has served for two terms on the
NWPCA's Board of Directors.
CASEY A. FLETCHER will become Chief Accounting Officer and Secretary
upon the closing of this Offering. Mr. Fletcher has been employed by Ridge since
1983 where he has served as Controller and Chief Financial Officer. Prior
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to his employment with Ridge, Mr. Fletcher was associated with Arthur Young from
1976 to 1979. From 1980 to 1983, he was in private industry as an accountant.
Mr. Fletcher is a Certified Public Accountant.
STEPHEN C. SYKES will become a director of the Company upon the
closing of this Offering. Mr. Sykes founded Interstate in 1979 and has served as
President and Chief Executive Officer from its inception. From 1974 to 1979, Mr.
Sykes was the Director of Transportation for the Virginia Division of Holly
Farms Poultry. Mr. Sykes has been an active member of the NWPCA since 1981 and
served as its President from 1992 to 1993.
TUCKER S. BRIDWELL will become a director of the Company upon the
closing of this Offering. Since 1992, Mr. Bridwell has been President of Fred
Hughes Motors, Inc., the owner of ten new-car franchises in the Abilene, Texas
area. Mr. Bridwell is also the President of Topaz Exploration Company, an oil
and gas exploration company, a position he has held since 1980. From 1985 to
1992, Mr. Bridwell was President of Ard Drilling Company, an oilfield drilling
company, and served as President of Texzona Corporation, a private investment
company, from 1979 to 1980. From 1976 to 1979, Mr. Bridwell was Tax Manager with
Condley & Company and was an accountant with Price Waterhouse from 1974 to 1976.
Mr. Bridwell is a Certified Public Accountant.
JOHN E. DRURY will become a director of the Company upon the closing
of this Offering. Mr. Drury is the Chairman and Chief Executive Officer of USA
Waste Services, Inc. ("USA Waste"), the third largest solid waste company in
North America. Mr. Drury has held these positions since May 1994, when USA Waste
and Envirofil, Inc. ("Envirofil") completed their merger. Following this merger,
USA Waste acquired publicly-held Chambers Development Company, Western Waste
Industries, Inc. and Sanifill, Inc., increasing its revenues from approximately
$100 million in 1993 to approximately $1.6 billion in 1996. From February 1991
through April 1994, Mr. Drury was a Managing Director of Sanders Morris Mundy,
Inc., an investment banking firm. From 1982 through January 1991, Mr. Drury was
President and Chief Operating Officer of Browning Ferris Industries, Inc.
("BFI"), where he was responsible for the worldwide operations of BFI.
SAM W. HUMPHREYS has been a director of the Company since January
1996 and will become non-executive Chairman of the Board upon the closing of
this Offering. He is the Vice Chairman of U.S. Delivery Systems, Inc. ("U.S.
Delivery"), the largest same-day local delivery company in the U.S. Mr.
Humphreys has held various executive positions with U.S. Delivery since April
1994. Since U.S. Delivery completed its initial public offering in May 1994, it
has completed 80 acquisitions and has grown from approximately $100 million to
approximately $800 million in annual revenues. Prior to joining U. S. Delivery,
Mr. Humphreys served from May 1993 until April 1994 as Senior Vice President and
General Counsel of Envirofil, which merged with USA Waste in April 1994. Prior
thereto, Mr. Humphreys was a partner at Andrews & Kurth L.L.P., where he was
engaged in the private practice of law for more than five years prior to joining
Envirofil. Mr. Humphreys is also a director of Aviation Sales Company, one of
the world's largest providers of aircraft spare parts. Mr. Humphreys is a
partner in Main Street.
The Board of Directors has established an Audit Committee and
Compensation Committee. The Audit Committee recommends the appointment of
auditors and oversees the accounting and audit functions of the Company. The
Compensation Committee determines executive officers' and key employees'
salaries and bonuses and administers the Plan. Messrs. Bridwell, Drury and
Humphreys will serve as members of the Company's Compensation Committee and
Audit Committee.
DIRECTORS COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives a fee of $1,000 for attendance at each Board of Directors
meeting and $500 for each committee meeting (unless held on the same day as a
Board of Directors meeting). Directors of the Company are reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, and for other expenses incurred in their capacity as
directors of the Company. Each non-employee director will receive stock options
to purchase 20,000 shares of Common Stock upon election to the Board of
Directors and an annual grant of 5,000 options. See "--Stock Option Plan."
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EXECUTIVE COMPENSATION
The Company was incorporated in January 1996 and, prior to this
Offering, has not conducted any operations other than activities related to the
Acquisitions and this Offering. The Company did not pay any compensation to its
executive officers prior to December 1996. The Company anticipates that during
1997 annualized base salaries of its most highly compensated executive officers
will be: Mr. Maultsby, $175,000; and $125,000 for each of Messrs. Holland,
Fletcher, Fraser and Sykes.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with each
executive officer and certain key employees of the Company which prohibits such
officer from disclosing the Company's confidential information and trade secrets
and generally restricts these individuals from competing with the Company for a
period of five years after the date of the Acquisitions. Each of the agreements
has an initial term of between one and three years and provides for an automatic
annual extension at the end of its initial term and is terminable by the Company
for "cause" upon ten days' written notice and without "cause" by either party
upon thirty days' written notice. All employment agreements provide that if the
officer's employment is terminated by the Company without "cause," such officer
will be entitled to receive a lump-sum severance payment at the effective time
of termination equal to the base salary at the rate then in effect for the
greater of (i) the time period remaining under the initial term of the agreement
or (ii) one year . In addition, all employment agreements provide that in the
event of termination without "cause", the time period during which such officer
is restricted from competing with the Company will be shortened from five years
to one year.
The employment agreements of Messrs. Maultsby, Holland, Fraser,
Fletcher, Sykes and certain key employees of the Founding Companies contain
certain provisions concerning a change-in-control of the Company, including the
following: (i) in the event five days' advance notice of the transaction giving
rise to the change in control is not received by the Company and such officer,
the change in control will be deemed a termination of the employment agreement
by the Company without "cause," and the provisions of the employment agreement
governing the same will apply, except that the severance amount otherwise
payable (discussed in the preceding paragraph) shall be tripled and the
provisions which restrict competition with the Company shall not apply; (ii) in
any change-of-control situation, such officer may elect to terminate his
employment by giving five days' written notice prior to the anticipated closing
of the transaction giving rise to the change-in-control, which will be deemed a
termination of the employment agreement by the Company without "cause," and the
provisions of the employment agreement governing the same will apply, except
that the severance amount otherwise payable shall be doubled and the time period
during which such officer is restricted from competing with the Company will be
shortened from five years to two years; and (iii) the officer must be given
sufficient time and opportunity to elect whether to exercise all or any of his
options to purchase Common Stock, including any options with accelerated vesting
under the provisions of the Plan, such that the officer may acquire the Common
Stock at or prior to the closing of the transaction giving rise to the
change-in-control, if he so desires.
STOCK OPTION PLAN
The Board of Directors has adopted, and the stockholders of the
Company approved, the Plan. The purpose of the Plan is to provide directors,
officers, key employees and certain other persons who will be instrumental in
the success of the Company or its subsidiaries with additional incentives by
increasing their proprietary interest in the Company. The aggregate amount of
Common Stock with respect to which options may be granted may not exceed the
greater of 1,800,000 shares (subject to adjustment to reflect stock splits) or
15% of the Company's outstanding Common Stock, as determined on each date an
option is granted.
The Plan is administered by the Compensation Committee, which is
composed of non-employee directors (the "Committee"). Subject to the terms of
the Plan, the Committee generally determines to whom options will be granted and
the terms and conditions of option grants.
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The exercise price of any option may not be less than the fair market
value of the underlying Common Stock as of the date of grant and no employee or
consultant may receive an option in any year to purchase more than 51,000 shares
of Common Stock. The Committee determines the period over which options become
exercisable, provided that all options become immediately exercisable upon death
of the grantee or upon a change-in-control (as defined in the Plan) of the
Company.
The Plan also provides for automatic option grants to directors who
are not otherwise employed by the Company or its subsidiaries. Upon commencement
of service, a non-employee director will receive a non-qualified option to
purchase 20,000 shares of Common Stock, and continuing non-employee directors
annually will receive options to purchase 5,000 shares of Common Stock. Options
granted to non-employee directors are fully exercisable following the expiration
of six months from the date of grant.
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Mr. Maultsby has been granted options to purchase 200,000 shares of
Common Stock under the Plan, of which 100,000 shares may be purchased at an
exercise price of $7.50 per share with the remainder of the options having an
exercise price equal to the initial public offering price. Mr. Maultsby's
options vest annually in 25% increments beginning in November 1997. The
potential realizable value of Mr. Maultsby's options, assuming 5% and 10% annual
rates of appreciation over ten years for the Company's Common Stock, is
$1,507,790 and $3,437,484, respectively. These potential realizable values were
determined based upon assumed rates of appreciation and are not intended to
forecast the possible future appreciation, if any, of the price or value of the
Company's Common Stock.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Company was initially capitalized in January 1996 by Main
Street. Sam W. Humphreys, a director of the Company, is a partner in Main Street
and John E. Drury, a director of the Company, is a special limited partner in
Main Street. As a result of stock splits, the 1,000 shares of common stock
initially issued by the Company to Main Street will total 1,021,389 shares of
Common Stock immediately prior to the closing of this Offering. Since early
1996, Main Street has advanced funds to the Company pursuant to a commitment to
enable the Company to pay various expenses incurred in connection with its
efforts to complete the Acquisitions and effect this Offering.
Simultaneously with the closing of this Offering, the Company will
acquire by merger all the issued and outstanding capital stock of the Founding
Companies, at which time each Founding Company will become a wholly owned
subsidiary of the Company. The aggregate consideration that will be paid by the
Company to acquire the Founding Companies consists of (i) approximately $4.5
million in cash and (ii) 5,910,000 shares of Common Stock. In addition, the
Company intends to repay approximately $10.5 million of the estimated
outstanding indebtedness of the Founding Companies at the closing of the
Offering and also will issue 142,500 shares of common stock to the Founding
Companies' profit sharing plan.
The following table sets forth for each Founding Company the
approximate consideration to be paid to the stockholders of the Founding
Companies (i) in cash and (ii) in shares of Common Stock, in each case subject
to adjustments through the date of the consummation of the Acquisition for
changes in the amount of debt outstanding and the amount of S Corporation
earnings previously taxed to stockholders of the Founding Companies.
SHARES OF
CASH COMMON STOCK
------------------ -----------------------
Fraser.............. $ 3,865,000 2,926,275
Ridge............... -- 2,593,128
Interstate.......... 620,000 390,597
------------------ -----------------------
Total.......... $ 4,485,000 5,910,000
================== =======================
In addition, immediately prior to consummation of the Acquisitions,
the Founding Companies will make distributions of approximately $8.3 million in
the aggregate, representing S Corporation earnings previously taxed to their
respective stockholders. The Founding Companies will also distribute
approximately $210,000 in net book value of certain non-operating assets prior
to consummation of the Acquisitions.
The consummation of each Acquisition is subject to customary
conditions. These conditions include, among others, the accuracy on the closing
date of the Acquisitions of the representations and warranties of the Founding
Companies, their stockholders and of the Company and the performance by each of
the parties of their respective covenants.
The agreements relating to the Acquisitions may be terminated under
certain circumstances prior to the consummation of this Offering. Specifically,
the agreements may be terminated (i) by the mutual consent of the board of
directors of the Company and each Founding Company; (ii) if this Offering and
the Acquisitions are not consummated by April 1, 1997; or (iii) if a material
breach or default under the agreements shall exist and is not cured or waived.
There can be no assurance that the conditions to the closing of the Acquisitions
will be satisfied or waived or that the agreements relating to the Acquisitions
will not be terminated prior to the closing.
Pursuant to the agreements relating to the Acquisitions, all
stockholders of each of the Founding Companies have agreed not to compete with
the Company for a period of five years commencing on the date of closing of the
Acquisitions.
Individuals who are or will become officers or directors of the
Company will receive the following consideration in the Acquisitions for their
interests in the Founding Companies, subject to adjustments as described above.
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SHARES OF
CASH COMMON STOCK
-------------- --------------
Ridge
A. E. Holland, Jr.......... $ -- 313,818
Casey A. Fletcher.......... $ -- 313,818
Fraser
Troy O. Fraser............. $ 1,893,850 1,433,875
Interstate
Stephen C. Sykes........... $ 620,000 390,597
TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
In August 1994, Ridge purchased its pallet and box manufacturing
business in a management buyout from Resources, a predecessor company owned by
A. E. Holland, Jr., Chief Operating Officer and a director of the Company, and
two other employees of Ridge. As consideration for this purchase, Ridge issued
notes for a total of approximately $12.6 million to Resources and assumed
approximately $1.8 million of Resources' liabilities. Resources subsequently
distributed an interest in a portion of its note receivable from Ridge directly
to Mr. Holland and the other two stockholders. The Ridge Notes mature in January
2000 and pay interest at the prime rate (8.25% as of August 31, 1996). Ridge
paid approximately $909,000 and $982,000 in interest expense under the Ridge
Notes during fiscal 1995 and 1996, respectively. The Ridge Notes will be repaid
with a portion of the proceeds of the Offering. The amount anticipated to be
paid from the proceeds is $1.75 million to Resources and $1.75 million each to
Mr. Holland and the other two stockholders. The Ridge Notes are guaranteed by
certain of Ridge's stockholders, all of whom are employees of the Company,
including Casey A. Fletcher, Chief Accounting Officer of the Company. The
guarantee will be released upon repayment of the Ridge Notes. Resources
maintains a lumber and fastener brokerage and other businesses.
Fraser has notes outstanding to certain affiliates in the total
amount of approximately $70,000. The notes bear interest at 14.0% per annum,
mature in January 2005 and are expected to be repaid with a portion of the
proceeds of the Offering.
Certain stockholders of certain of the Founding Companies, whom will
be directors, executive officers or key employees of the Company have guaranteed
indebtedness and other obligations of each of their respective Founding
Companies. These guarantees are expected to be terminated after the completion
of this Offering.
Main Street has agreed to pay up to $1.25 million of the Company's
expenses, including legal and accounting fees, incurred in connection with the
Offering and the Acquisitions. The Company will pay from the proceeds of the
Offering any expenses which exceed such amount.
In connection with the Acquisitions, the Company has agreed to issue
82,500, 50,000 and 10,000 shares of Common Stock to the Ridge Pallets, Inc.
Profit Sharing Plan, the Fraser Industries, Inc. Profit Sharing Plan and the
Interstate Pallet Co., Inc. Profit Sharing Plan, respectively. The plans will
distribute the Common Stock in accordance with the terms of such plans. Certain
officers and directors of the Company are participants in these plans and will
benefit from the contribution of the Common Stock under the terms of such plans.
In fiscal years 1994, 1995 and 1996, Ridge sold approximately
$977,000, $484,000 and $666,000, respectively, of lumber to Sunbelt Forest
Products Corporation ("Sunbelt"), a chemical wood preserving company, which is
owned by Mr. Holland and two other employees of Ridge. During fiscal year 1994
Ridge recorded $193,000 of interest income from loans make to Sunbelt. Mr.
Fletcher is a director of Sunbelt. Additionally, Ridge purchased from Resources
approximately $199,000 and $421,000 of fasteners during fiscal years 1995 and
1996, respectively. The sales prices charged Sunbelt and the purchase prices
paid by Ridge were competitive with those charged or paid to unaffiliated third
parties. In addition, Ridge provides certain accounting, human resource and
managerial services to Sunbelt and received as payment therefor $135,000,
$75,000 and $55,000 for the fiscal years 1994, 1995 and 1996, respectively. The
Company intends to continue to transact business on an arms-length basis with
Sunbelt in the future.
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Mr. Bridwell, who will be a member of the Company's Board of
Directors upon the closing of this Offering, will receive a payment from the
Company of $50,000 and options to purchase 20,000 shares of Common Stock,
exercisable at the initial public offering price per share pursuant to the Plan,
for providing advice to Fraser in connection with the Acquisitions. Mr. Bridwell
will also receive options to purchase 20,000 shares of Common Stock in
connection with his election to the Company's Board of Directors exercisable at
the initial public offering price. See "Principal Stockholders."
Interstate leases its operating facilities from Mr. Sykes, the sole
stockholder of Interstate prior to the closing of the Offering. The Company
currently intends to continue to lease the property from Mr. Sykes and believes
the lease payments are at market rates. Mr. Sykes has the right to require the
Company to purchase the property at its appraised valued, estimated to be
between $1.0 million and $1.2 million. This right can be exercised during the
period beginning six months and ending 12 months after the closing of the
Offering.
COMPANY POLICY
In the future, any transactions with directors, officers, employees
or affiliates of the Company are anticipated to be minimal and will, in any
case, be approved by a majority of the Board of Directors, including a majority
of disinterested members of the Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to
beneficial ownership of the Company's Common Stock, after giving effect to the
issuance of shares of Common Stock in connection with the Acquisitions and after
giving effect to the Offering, by (i) all persons known to the Company to be the
beneficial owner of 5% or more thereof, (ii) each director and nominee for
director, (iii) each executive officer and (iv) all officers, directors and
director nominees as a group. Unless otherwise indicated, the address of each
such person is c/o PalEx, Inc., 3555 Timmons Lane, Suite 610, Houston, Texas
77027. All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
PERCENTAGE OWNED
----------------
BEFORE AFTER
SHARES OFFERING OFFERING
------ -------- --------
Vance K. Maultsby, Jr(1)............... 250,000 3.4% 2.4%
A. E. Holland, Jr...................... 313,818 4.4 3.1
Troy O. Fraser......................... 1,433,875 20.1 14.2
Stephen C. Sykes....................... 390,597 5.5 3.9
Casey A. Fletcher...................... 313,818 4.4 3.1
Tucker S. Bridwell(2).................. 40,000 0.6 0.4
John E. Drury (3)...................... 45,000 0.6 0.4
Sam W. Humphreys(4).................... 1,021,389 14.3 10.1
Main Street Capital Partners, L.P...... 1,021,389 14.3 10.1
Stephen Fraser(5)...................... 877,882 12.3 8.7
Joseph Elmore(6)....................... 614,518 8.6 6.1
All officers, directors and director
nominees as a group (8
persons).......................... 3,808,497 51.6% 37.3%
- ------------------------------------
(1) Includes options to purchase 100,000 shares at an exercise price of $7.50
per share and options to purchase 100,000 shares at the initial public
offering price granted under the Plan. Such options vest at 25% a year over
the four year period ending November 2000.
(2) Includes 40,000 shares which may be acquired upon the exercise of options
granted under the Plan.
(3) Includes 20,000 shares which may be acquired upon the exercise of options
granted under the Plan and 25,000 shares deemed to be beneficially owned by
Mr. Drury as a special limited partner in Main Street.
(4) Includes 1,021,389 shares issued to Main Street. Mr. Humphreys is a partner
in Main Street.
(5) Mr. Fraser's address is 111 East 7th Street, Big Spring, Texas 79720.
(6) Mr. Elmore's address is 1020 Highway 82 West, New Boston, Texas 75570.
(7) Includes 260,000 shares subject to options which become exercisable during
the four year period ending November 2000.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 30,000,000 shares
of Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $0.01 per share. After giving effect to the Acquisitions, there
were 7,123,889 shares of Common Stock outstanding which were held of record by
15 stockholders, and no shares of Preferred Stock outstanding. After the closing
of the Offering, 10,123,889 shares of Common Stock will be issued and
outstanding, assuming no exercise of the Underwriters' over-allotment option.
The following summary of the terms and provisions of the Company's capital stock
does not purport to be complete and is qualified in its entirety by reference to
the Company's Amended and Restated Certificate of Incorporation and By-laws,
which have been filed as exhibits to the Company's registration statement, of
which this Prospectus is a part, and applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
on all matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred
Stock, the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock are entitled
to share ratably in the net assets of the Company upon liquidation after payment
or provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences of the shares constituting
any class or series of the Preferred Stock, in each case without any further
action or vote by the stockholders. The Company has no current plans to issue
any shares of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable
the Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock at a premium or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law ("Section 203"). Section 203 provides, with
certain exceptions, that a Delaware corporation may not engage in any of a broad
range of business combinations with a person or an affiliate, or associate of
such person, who is an "interested stockholder" for a period of three years from
the date that such person became an interested stockholder unless: (i) the
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transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder, (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans), or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66% of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
A corporation may, at its option, exclude itself from the coverage
of Section 203 by including in its certificate of incorporation or by-laws by
action of its stockholders to exempt itself from coverage. The Company has not
adopted such an amendment to its Amended and Restated Certificate of
Incorporation or By-laws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Amended and Restated Certificate of
Incorporation and under Delaware law, directors of the Company are not liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty, except for liability in connection with a breach of the duty of loyalty,
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, for dividend payments or stock repurchases
illegal under Delaware law or any transaction in which a director has derived an
improper personal benefit. The Company has entered into indemnification
agreements with each of its directors and executive officers which indemnify
such person to the fullest extent permitted by its Amended and Restated
Certificate of Incorporation, its By-laws and the Delaware General Corporation
Law. The Company also intends to obtain directors' and officers' liability
insurance.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock
is___________________________ .
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SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by
the sale of substantial amounts of Common Stock in the public market. As of
December 20, 1996, 1,071,389 shares of Common Stock were issued and outstanding.
All of the 3,000,000 shares sold in the Offering, except for shares acquired by
affiliates of the Company, will be freely tradeable.
Simultaneously with the closing of the Offering, the stockholders of
the Founding Companies received, in the aggregate, 5,910,000 shares of Common
Stock as a portion of the consideration for their businesses. In addition,
142,000 shares of Common Stock will be issued to the Founding Companies profit
sharing plans. Certain other stockholders of the Company held, in the aggregate,
an additional 1,071,389 shares of Common Stock. None of these 7,123,889 shares
was issued in a transaction registered under the Securities Act, and,
accordingly, such shares may not be sold except in transactions registered under
the Securities Act or pursuant to an exemption from registration, including the
exemption contained in Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person, or
persons whose shares are aggregated, who has beneficially owned his or her
shares for at least two years but not more than three years, or a person who may
be deemed an "affiliate" of the Company who has beneficially owned shares for at
least two years, would be entitled to sell within any three month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Common Stock or the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of the
proposed sale is sent to the Securities and Exchange Commission. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. A person who is not deemed to have been an affiliate of the Company at
any time for 90 days preceding a sale and who has beneficially owned his shares
for at least three years would be entitled to sell such shares under Rule 144
without regard to the volume limitations, manner of sale provisions, notice
requirements or the availability of current public information about the
Company.
The Company has authorized the issuance of 1,800,000 shares of its
Common Stock in accordance with the terms of the Plan. Options to purchase
200,000 shares have been granted to Mr. Maultsby under the Plan and it is
anticipated that 725,000 shares of Common Stock will be granted upon closing of
the Offering to certain employees of the Founding Companies. The Company intends
to file a registration statement on Form S-8 under the Securities Act
registering the issuance of shares upon exercise of options granted under the
Plan. As a result, such shares will be eligible for resale in the public market.
The Company currently intends to file a registration statement
covering 4,000,000 additional shares of Common Stock under the Securities Act
for its use in connection with future acquisitions. These shares generally will
be freely tradeable after their issuance by persons not affiliated with the
Company unless the Company contractually restricts their resale.
The Company has agreed that it will not offer, sell or issue any
shares of Common Stock or options, rights or warrants to acquire any Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Alex. Brown & Sons Incorporated, except for the grant
of employee stock options and for shares issued (i) in connection with
acquisitions and (ii) pursuant to the exercise of options granted under the
Plan. Further, the Company's directors, officers and certain stockholders who
beneficially own 7,123,889 shares in the aggregate have agreed not to directly
or indirectly offer for sale, sell or otherwise dispose of any Common Stock for
a period of 180 days after the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated. In addition, the owners of the
Founding Companies have agreed not to sell, contract to sell or otherwise
dispose of any shares of Common Stock received as consideration in the
Acquisitions for a period of two years following receipt thereof.
Prior to this Offering, there has been no established trading market
for the Common Stock, and no predictions can be made as to the effect that sales
of Common Stock under Rule 144, pursuant to a registration statement, or
otherwise, or the availability of shares of Common Stock for sale, will have on
the market price prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could depress the prevailing market price. Such sales may also make it
more difficult for the Company to issue or sell
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equity securities or equity-related securities in the future at a time and price
that it deems appropriate. See "Risk Factors -- Shares Eligible for Future
Sale."
The former stockholders of the Founding Companies and certain
officers, directors and stockholders holding in the aggregate 6,981,389 shares
of Common Stock are entitled to certain rights with respect to the registration
of their shares of Common Stock under the Securities Act. If the Company
proposes to register any of its securities under the Securities Act, such
stockholders are entitled to notice of such registration and are entitled to
include, at the Company's expense, all or a portion of their shares therein,
subject to certain conditions.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
the Underwriters named below (the "Underwriters"), through their
Representatives, Alex. Brown & Sons Incorporated and Montgomery Securities, have
severally agreed to purchase from the Company the following respective number of
shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
NUMBER
UNDERWRITER OF SHARES
----------- ---------
Alex. Brown & Sons Incorporated............
Montgomery Securities......................
-------------
Total...................................... 3,000,000
=============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives that the
Underwriters propose to offer the shares of Common Stock to the public at the
initial public price offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $-per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $-per share to certain other dealers. After
commencement of the initial public offering, the offering price and other
selling terms may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 3,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,000,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed that it will not offer or sell any shares of
Common Stock or options, rights or warrants to acquire any Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated, except for the grant of employee
stock options and for shares issued (i) in connection with acquisitions and (ii)
pursuant to the exercise of options granted under the Plan. Further, the
Company's directors, officers and certain stockholders who beneficially own
7,123,889 shares in the aggregate have agreed not to directly or indirectly
offer for sale, sell or otherwise dispose of any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated. In addition, the owners of the Founding
Companies have agreed not to sell, contract to sell or otherwise dispose of any
shares of Common Stock received as consideration in the Acquisitions for a
period of two years following receipt thereof.
The Representatives have advised the Company that the Underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.
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Prior to this Offering, there has been no public market for the
Common Stock. Consequently, the initial public offering price for the Common
Stock has been determined by negotiations between the Company and the
Representatives. Among the factors considered in such negotiations were
prevailing market conditions, the results of operations of the Founding
Companies in recent periods, the market capitalization and stages of development
of other companies which the Company and the Representatives believed to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.
The Company intends to file an application to list the Common Stock
on the .
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being
offered hereby will be passed upon for the Company by Andrews & Kurth L.L.P.,
Houston, Texas and for the Underwriters by McDermont, Will & Emery, Chicago,
Illinois.
EXPERTS
The audited financial statements of Fraser Industries, Inc. and
Ridge Pallets, Inc. included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is included as part of the Registration Statement, does not
contain all the information contained in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. Statements made in the Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected, without charge, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and 7 World Trade Center, Suite 1300, New York, NY 10048 or
on the Internet at http://www.sec.gov. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm for each fiscal year.
-47-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Unaudited Pro Forma Combined
Financial Statements
Basis of Presentation........... F-2
Pro Forma Combined Balance Sheet
as of August 31, 1996........... F-3
Pro Forma Combined Statement of
Income for the Twelve Months
Ended August 31, 1996......... F-4
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-5
Historical Financial Statements
Fraser Industries, Inc.
Report of Independent
Public Accountants........... F-8
Balance Sheets............. F-9
Statements of Income....... F-10
Statements of Changes in
Stockholders' Equity......... F-11
Statements of Cash Flows... F-12
Notes to Financial
Statements................... F-13
Ridge Pallets, Inc.
Report of Independent
Public Accountants......... F-19
Balance Sheets............. F-20
Statements of Income
(Loss)....................... F-21
Statements of Changes in
Stockholders' Equity....... F-22
Statements of Cash Flows... F-23
Notes to Financial
Statements................... F-24
PalEx, Inc.
Report of Independent
Public Accountants......... F-31
Balance Sheet.............. F-32
Notes to Financial
Statements................. F-33
F-1
<PAGE>
PALEX, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisitions by PalEx, Inc. ("PalEx" or the "Company") of the
outstanding capital stock of Fraser Industries, Inc. ("Fraser"), Ridge
Pallets, Inc. ("Ridge") and Interstate Pallet Company, Inc. ("Interstate"),
(together, the "Founding Companies"). These acquisitions (the
"Acquisitions") will occur simultaneously with the closing of PalEx's initial
public offering (the "Offering") and will be accounted for using the purchase
method of accounting. Fraser, one of the Founding Companies, has been identified
as the accounting acquiror for financial statement presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on August 31, 1996. The
unaudited pro forma combined statement of income gives effect to these
transactions as if they had occurred on September 1, 1995.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. The Company has not and cannot quantify these savings until
completion of the combination of the Founding Companies. It is anticipated that
these savings will be partially offset by the costs of being a publicly-held
company and the incremental increase in costs related to the Company's new
management. However, these costs, like the savings that they offset, cannot be
quantified accurately. Neither the anticipated savings nor the anticipated costs
have been included in the pro forma financial information of PalEx.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The pro forma financial data does not purport to represent
what the Company's financial position or results of operations would actually
have been if such transactions in fact had occurred on those dates or to project
the Company's financial position or results of operations for any future period.
Since the Founding Companies were not under common control or management,
historical combined results may not be comparable to, or indicative of, future
performance. The unaudited pro forma combined financial statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. See "Risk Factors" included elsewhere
herein.
F-2
<PAGE>
PALEX, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED BALANCE SHEET -- AUGUST 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA POST MERGER
PALEX FRASER RIDGE INTERSTATE ADJUSTMENTS PRO FORMA ADJUSTMENTS
----- --------- --------- ---------- ----------- --------- -----------
(NOTE 3) (NOTE 3)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $ 1 $ 6 $ 1,250 $ 122 $(1,896) $ (517) $ 3,588
Accounts receivable, net of
allowance......................... -- 2,782 3,376 478 -- 6,636 --
Inventories......................... -- 2,875 3,687 35 -- 6,597 --
Other current assets................ -- 60 144 57 -- 261 --
----- --------- --------- ---------- ----------- --------- -----------
Total current assets............ 1 5,723 8,457 692 (1,896) 12,977 3,588
PROPERTY, PLANT AND EQUIPMENT, net...... -- 7,178 6,151 415 (210) 13,534 --
GOODWILL................................ -- -- -- -- 26,171 26,171 --
OTHER ASSETS............................ -- 158 1,101 -- -- 1,259 --
----- --------- --------- ---------- ----------- --------- -----------
Total assets.................... $ 1 $ 13,059 $ 15,709 $1,107 $24,065 $53,941 $ 3,588
===== ========= ========= ========== =========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit...................... $-- $ 955 $ -- $-- $-- $ 955 $ (955)
Current maturities of long-term
debt.............................. -- 719 1,050 16 -- 1,785 (1,785)
Accounts payable.................... -- 1,493 796 32 -- 2,321 --
Accrued expenses.................... -- 1,480 1,003 169 -- 2,652 --
Pro forma cash consideration and S
Corporation distributions due to
Founding Companies................ -- -- -- -- 11,400 11,400 (11,400)
----- --------- --------- ---------- ----------- --------- -----------
Total current liabilities....... -- 4,647 2,849 217 11,400 19,113 (14,140)
LONG-TERM DEBT, net of current
maturities............................ -- 1,617 8,600 57 -- 10,274 (9,672)
OTHER LONG-TERM LIABILITIES............. -- 384 -- -- 1,424 1,808 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock........................ 10 11 550 10 (510) 71 30
Additional paid-in capital.......... 67 496 -- 20,447 21,010 27,370
Retained earnings................... (9 ) 6,424 3,214 823 (8,787) 1,665 --
Treasury stock...................... -- (91) -- -- 91 -- --
----- --------- --------- ---------- ----------- --------- -----------
Total stockholders' equity...... 1 6,411 4,260 833 11,241 22,746 27,400
----- --------- --------- ---------- ----------- --------- -----------
Total liabilities and
stockholders' equity.......... $ 1 $ 13,059 $ 15,709 $1,107 $24,065 $53,941 $ 3,588
===== ========= ========= ========== =========== ========= ===========
</TABLE>
AS
ADJUSTED
--------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $ 3,071
Accounts receivable, net of
allowance......................... 6,636
Inventories......................... 6,597
Other current assets................ 261
--------
Total current assets............ 16,565
PROPERTY, PLANT AND EQUIPMENT, net...... 13,534
GOODWILL................................ 26,171
OTHER ASSETS............................ 1,259
--------
Total assets.................... $57,529
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit...................... $ --
Current maturities of long-term
debt.............................. --
Accounts payable.................... 2,321
Accrued expenses.................... 2,652
Pro forma cash consideration and S
Corporation distributions due to
Founding Companies................ --
--------
Total current liabilities....... 4,973
LONG-TERM DEBT, net of current
maturities............................ 602
OTHER LONG-TERM LIABILITIES............. 1,808
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock........................ 101
Additional paid-in capital.......... 48,380
Retained earnings................... 1,665
Treasury stock...................... --
--------
Total stockholders' equity...... 50,146
--------
Total liabilities and
stockholders' equity.......... $57,529
========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-3
<PAGE>
PALEX, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA POST MERGER AS
FRASER RIDGE INTERSTATE ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
------- ------- ---------- ----------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES................................ $45,100 $48,341 $4,284 $-- $97,725 $-- $97,725
COST OF GOODS SOLD...................... 37,900 40,540 3,341 -- 81,781 -- 81,781
------- ------- ---------- ----------- --------- ------------ --------
Gross profit........................ 7,200 7,801 943 -- 15,944 -- 15,944
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 2,904 3,825 84 (630)(a) 7,017 -- 7,017
834(b)
------- ------- ---------- ----------- --------- ------------ --------
Income from operations.............. 4,296 3,976 859 (204) 8,927 -- 8,927
INTEREST (EXPENSE), AND OTHER INCOME
net................................... (587) (833) 3 -- (1,417) 1,440(c) 23
------- ------- ---------- ----------- --------- ------------ --------
INCOME BEFORE INCOME TAXES.............. 3,709 3,143 862 (204) 7,510 1,440 8,950
PROVISION (BENEFIT) FOR INCOME TAXES.... 195 76 52 2,831(d) 3,154 600(d) 3,754
------- ------- ---------- ----------- --------- ------------ --------
NET INCOME.............................. $ 3,514 $ 3,067 $ 810 $(3,035) $ 4,356 $ 840 $ 5,196
======= ======= ========== =========== ========= ============ ========
EARNINGS PER SHARE...................... $ .51
========
SHARES USED IN COMPUTING EARNINGS PER (e) 10,123,889
SHARE.................................
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-4
<PAGE>
PALEX, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
PalEx, Inc. was formed to create a national provider of pallet products and
services, including the manufacture and distribution of new pallets, the repair
and remarketing of used pallets, and the processing and marketing of various
wood-based by-products derived from pallets. PalEx has conducted no operations
to date and will acquire the Founding Companies concurrently with the
consummation of the Offering.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as follows: Fraser -- as of August 31, 1996, and the 12 months ended August 31,
1996; Ridge -- as of July 28, 1996, and the fiscal year ended July 28, 1996; and
Interstate -- as of August 31, 1996, and the 12 months ended August 31, 1996.
The audited historical financial statements included elsewhere herein have been
included in accordance with Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, PalEx will acquire all of the
outstanding capital stock of the Founding Companies. The acquisitions will be
accounted for using the purchase method of accounting with Fraser being treated
as the accounting acquiror.
The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the common stockholders of each of the Founding
Companies. The table does not reflect (i) the distribution of S Corporation
Accumulated Adjustment Accounts prior to the merger estimated to be $8.3 million
(ii) approximately 142,500 shares of Common Stock to be issued by PalEx to the
Founding Companies' profit-sharing plans upon completion of the Acquisitions and
Offering.
COMMON STOCK
-----------------------
VALUE OF
CASH SHARES SHARES1
--------- --------- --------
(DOLLARS IN THOUSANDS)
Fraser............................... $ 3,865 2,926,275 $ 21,947
Ridge................................ -- 2,593,128 19,449
Interstate........................... 620 390,597 2,929
--------- --------- --------
$ 4,485 5,910,000 $ 44,325
========= ========= ========
- ------------
1 Value is determined using the estimated initial offering price of $10 per
share, less a discount of 25 percent based on restrictions on the sale and
transferability of the shares issued.
The estimated purchase price for the acquisitions is based upon preliminary
estimates and is subject to certain purchase price adjustments at and following
closing.
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
a. Reflects distribution of S Corporation Accumulated Adjustment
Accounts of certain Founding Companies.
b. Reflects the distribution of certain non-operating assets to
certain stockholders of the Founding Companies.
c. Reflects the acquisition of the Founding Companies including the
liability for the cash consideration to be paid and the issuance of
5,910,000 shares of Common Stock to the stockholders of the Founding
Companies in connection with the Acquisitions.
F-5
<PAGE>
PALEX, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
d. Reflects the payment of financial advisory fees incurred by the
Founding Companies in connection with the Acquisitions.
e. Reflects the issuance of 50,000 shares of common stock to
management.
f. Reflects the issuance of 142,500 shares of common stock to the
Founding Companies' profit-sharing plans.
g. Reflects the deferred income tax liability attributable to the
temporary differences between financial reporting and income tax bases of
assets and liabilities currently held in S Corporations.
h. Reflects the proceeds from the issuance of 3,000,000 shares of
Common Stock, net of estimated offering costs (based on an assumed initial
public offering price of $10 per share). Offering costs primarily consist
of underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
i. Reflects the repayment of certain debt obligations with proceeds
from the Offering.
j. Reflects the cash portion of the purchase price of the Founding
Companies and the distribution of the S Corporation Accumulated Adjustment
Accounts.
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ (1,378) $ -- $ -- $ (518) $ -- $ -- -- $ (1,896)
Property, plant and equipment, net... (210) (210)
Goodwill............................. 25,010 468 693 26,171
Pro forma cash consideration and
Accumulated Adjustment Account
due to Founding Companies'
shareholders....................... (6,915) (4,485) (11,400)
Other long-term liabilities.......... (1,424) (1,424)
Common stock......................... 513 (1) (2) 510
Additional paid-in capital........... (19,082) (299) (1,066) (20,447)
Retained earnings.................... 8,293 210 (1,865) 50 300 375 1,424 8,787
Treasury stock....................... (91) (91)
--------- --------- --------- --------- --------- --------- --------- -----------
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= ========= ========= ========= ===========
POST
MERGER
(H) (I) (J) ADJUSTMENTS
--------- --------- --------- -----------
Cash and cash equivalents............ $ 27,400 $ (12,412) $ (11,400) $ 3,588
Line of credit....................... 955 955
Current maturities of long-term
debt............................... 1,785 1,785
Pro forma cash consideration and
Accumulated Adjustment Account
due to Founding Companies'
shareholders....................... 11,400 11,400
Long-term debt, net of current
maturities......................... 9,672 9,672
Common stock......................... (30) (30)
Additional paid-in capital........... (27,370) (27,370)
--------- --------- --------- -----------
$ -- $ -- $ -- $ --
========= ========= ========= ===========
</TABLE>
F-6
<PAGE>
PALEX, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME ADJUSTMENTS:
a. Adjusts compensation to the level the owners of the Founding
Companies have agreed to receive subsequent to the Acquisitions.
b. Reflects the amortization of goodwill using a 30-year estimated
life.
c. Reflects the reduction in interest expense attributed to
obligations retired with proceeds from the Offering.
d. Reflects the incremental provision for federal and state income
taxes relating to the other income statement adjustments and for income
taxes on S Corporation income.
e. Includes: (i) 1,071,389 shares issued by PalEx prior to the
Offering, (ii) 5,910,000 shares to be issued to the stockholders of the
Founding Companies in connection with the Acquisitions, (iii) 142,500
shares to be issued to satisfy the obligations of the Founding Companies'
to their respective profit-sharing plans and (iv) 3,000,000 shares to be
issued in connection with the Offering. Excludes 725,000 shares of Common
Stock subject to options to be granted in connection with the Offering at
an exercise price equal to the initial public offering price, and 200,000
shares of Common Stock subject to options, 100,000 of which were granted at
$7.50 per share and 100,000 of which were granted at the initial public
offering price.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fraser Industries, Inc.:
We have audited the accompanying balance sheets of Fraser Industries, Inc.
(a Texas corporation), as of November 30, 1995, and August 31, 1996, and the
related statements of income and cash flows for the years ended November 30,
1994 and 1995, and the nine- and twelve-month periods ended August 31, 1996, and
the statements of changes in stockholders' equity for the years ended November
30, 1994 and 1995, and the nine-month period ended August 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fraser Industries, Inc., as
of November 30, 1995, and August 31, 1996, the results of its operations and its
cash flows for the years ended November 30, 1994 and 1995, and the nine- and
twelve-month periods ended August 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 8, 1996
F-8
<PAGE>
FRASER INDUSTRIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOVEMBER 30, AUGUST 31,
1995 1996
------------ ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 115 $ 6
Accounts receivable, net of
allowance of $30 and $57....... 3,169 2,782
Inventories..................... 3,289 2,875
Other current assets............ 150 60
------------ ----------
Total current assets....... 6,723 5,723
PROPERTY, PLANT AND EQUIPMENT, net... 5,215 7,178
OTHER ASSETS......................... 357 158
------------ ----------
Total assets............... $ 12,295 $ 13,059
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................. $ 2,950 $ 955
Current maturities of long-term
debt............................ 608 719
Accounts payable................ 1,314 1,493
Accrued expenses................ 854 1,480
------------ ----------
Total current
liabilities.................. 5,726 4,647
LONG-TERM DEBT, net of current
maturities......................... 2,362 1,617
DEFERRED INCOME...................... 360 341
DEFERRED INCOME TAXES................ 37 43
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value;
authorized 200,000 shares;
issued and outstanding 11,000
shares......................... 11 11
Capital in excess of par
value........................... 67 67
Retained earnings............... 3,823 6,424
------------ ----------
3,901 6,502
Less -- 1,000 shares of common
stock in treasury, at cost..... (91) (91)
------------ ----------
3,810 6,411
------------ ----------
Total liabilities and
stockholders' equity......... $ 12,295 $ 13,059
============ ==========
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
FRASER INDUSTRIES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE-MONTH TWELVE-MONTH
NOVEMBER 30 PERIOD ENDED PERIOD ENDED
-------------------- AUGUST 31, AUGUST 31,
1994 1995 1996 1996
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES................................ $ 23,114 $ 30,135 $ 36,185 $ 45,100
COST OF GOODS SOLD...................... 20,755 25,559 30,236 37,900
--------- --------- ------------ ------------
Gross profit....................... 2,359 4,576 5,949 7,200
SELLLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,761 2,131 2,299 2,904
--------- --------- ------------ ------------
Income from operations............. 598 2,445 3,650 4,296
INTEREST EXPENSE........................ (335) (450) (324) (434)
OTHER INCOME (EXPENSE), net............. (9) 19 (137) (153)
--------- --------- ------------ ------------
INCOME BEFORE INCOME TAXES.............. 254 2,014 3,189 3,709
PROVISION FOR INCOME TAXES.............. 6 91 168 195
--------- --------- ------------ ------------
NET INCOME.............................. $ 248 $ 1,923 $ 3,021 $ 3,514
========= ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
FRASER INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1994 AND 1995, AND
THE NINE-MONTH PERIOD ENDED AUGUST 31, 1996
(IN THOUSANDS)
COMMON
CAPITAL STOCK
COMMON IN EXCESS RETAINED IN
SHARES STOCK OF PAR EARNINGS TREASURY TOTAL
------ ------ --------- -------- ------ ------
BALANCE,
November
30,
1993... 11 $ 11 $ 67 $1,652 $ (91 ) $1,639
Net
income... -- -- -- 248 -- 248
------ ------ --- -------- ------ ------
BALANCE,
November
30,
1994... 11 11 67 1,900 (91 ) 1,887
Net
income... -- -- -- 1,923 -- 1,923
------ ------ --- -------- ------ ------
BALANCE,
November
30,
1995... 11 11 67 3,823 (91 ) 3,810
Net
income... -- -- -- 3,021 -- 3,021
Distributions... -- -- -- (420) -- (420)
------ ------ --- -------- ------ ------
BALANCE,
August
31,
1996... 11 $ 11 $ 67 $6,424 $ (91 ) $6,411
====== ====== === ======== ====== ======
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
FRASER INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE-MONTH TWELVE-MONTH
NOVEMBER 30 PERIOD ENDED PERIOD ENDED
-------------------- AUGUST 31, AUGUST 31,
1994 1995 1996 1996
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 248 $ 1,923 $ 3,021 $ 3,514
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and
amortization............... 736 956 893 1,142
Loss on sale of assets........ 1 10 135 135
Deferred income tax........... 6 21 6 6
Changes in operating assets
and liabilities --
Accounts receivable...... (854) (772) 387 (672)
Inventories.............. (257) (925) 414 (592)
Prepaid expenses......... 123 60 90 127
Other assets............. (86) (104) 189 53
Accounts payable and
accrued expenses...... 416 295 804 1,210
Deferred income.......... 385 (25) (19) (26)
--------- --------- ------------ ------------
Net cash provided by operating
activities................. 718 1,439 5,920 4,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment........................ (2,974) (1,497) (3,086) (3,324)
Proceeds from sale of equipment.... 15 13 106 109
--------- --------- ------------ ------------
Net cash used in investing
activities................. (2,959) (1,484) (2,980) (3,215)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt......... 2,237 740 1,880 3,405
Payments on long-term debt......... -- (607) (4,509) (4,661)
Distribution to stockholders....... -- -- (420) (420)
--------- --------- ------------ ------------
Net cash provided by (used in)
financing activities....... 2,237 133 (3,049) (1,676)
--------- --------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (4) 88 (109) 6
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 31 27 115 --
--------- --------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 27 $ 115 $ 6 $ 6
========= ========= ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest...................... $ 354 $ 446 $ 329 $ 416
Income taxes.................. 6 3 34 34
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
FRASER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BUSINESS AND ORGANIZATION:
Fraser Industries, Inc. (the "Company"), is a manufacturer and recycler
of wood pallets. Services the Company provides include pallet manufacturing,
repair, sorting, storage and transportation. The Company is headquartered in Big
Spring, Texas and has fourteen plants located primarily in Texas and Arkansas.
Sales are primarily made in the Southwest and California.
The Company and its stockholders intend to enter into a definitive
agreement with PalEx, Inc. ("PalEx"), pursuant to which all outstanding shares
of the Company's common stock will be exchanged for cash and shares of PalEx
common stock concurrent with the consummation of the initial public offering
(the "Offering") of the common stock of PalEx.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
FISCAL YEAR
The Company reported on a fiscal-year basis ending November 30, through
1995. Beginning with fiscal 1996, the Company's fiscal year was changed to
August 31. Therefore, the accompanying financial statements for the fiscal year
ended August 31, 1996, represent a nine-month period. The statements of income
and cash flows also reflect the twelve-month period ended August 31, 1996, for
comparative purposes. Revenues and net income for the three months ended
November 30, 1995, were $8,915,000 and $493,000, respectively (unaudited).
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out basis or by specific identification. The cost of
finished goods inventory includes direct materials, direct labor and overhead.
PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives. Leased property under capital leases is amortized over the lives of the
respective leases or over the service lives of the assets for those leases which
substantially transfer ownership. The straight-line method of depreciation is
followed for substantially all assets for financial reporting purposes, but
accelerated methods are used for state tax purposes.
Expenditures for maintenance and repairs are charged to operating expense
as incurred. Additions and major replacements or betterments that increase
capacity or extend useful lives are added to the cost of the asset. Upon sale or
retirement of property and equipment, the cost and related accumulated
depreciation are eliminated from the respective accounts and the resulting gain
or loss is included in other income (expense), net.
INCOME TAXES
The stockholders of the Company have elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under these provisions,
the Company does not pay federal and certain state income taxes. Instead, the
Company's stockholders pay income taxes on their proportionate shares of the
Company's net earnings. The provision for income taxes is composed entirely of
state income taxes.
F-13
<PAGE>
FRASER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue upon delivery of the product to the
customer.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement establishes the recognition and measurement standards related to the
impairment of long-lived assets. The Company will adopt this standard September
1, 1996. It is the opinion of management that the adoption of this standard will
not have a material effect on the Company's financial position or results of
operations.
CONCENTRATIONS OF RISK
MATERIALS -- Pallet prices are closely related to the changing costs and
availability of lumber, the principal raw material used in the manufacture and
repair of wooden pallets. Lumber supplies and costs are affected by many factors
including weather, governmental regulation of logging on public lands, lumber
agreements between Canada and the United States and competition from other
industries that use similar grades and types of lumber. The Company received
approximately 14 percent and 12 percent of its lumber purchases from one
supplier in 1995 and 1996, respectively.
MARKETS -- Markets for pallet manufacturing and repair services are highly
fragmented and competitive. Pallet manufacturing and recycling operations are
not capital-intensive; therefore, barriers to entry in such businesses are
minimal.
CUSTOMERS -- The Company sells to customers with local, regional and
national operations in many different industries and geographical locations. Of
such customers, one customer accounted for approximately 24 percent, 43 percent
and 40 percent of the Company's revenues in 1995 and the nine- and twelve-month
periods ended 1996. As of August 31, 1996, this customer had an outstanding
accounts receivable balance which represented approximately 20 percent of the
Company's total accounts receivable.
F-14
<PAGE>
FRASER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
ESTIMATED
USEFUL
LIVES NOVEMBER 30, AUGUST 31,
IN YEARS 1995 1996
--------- ------------ ----------
Land................................... -- $ 41 $ 41
Machinery and equipment................ 5 - 7 8,000 10,258
Buildings.............................. 15 938 1,106
Furniture and fixtures................. 7 393 393
------------ ----------
9,372 11,798
Less -- Accumulated depreciation....... (4,157) (4,620)
------------ ----------
Property, plant and equipment,
net............................. $ 5,215 $ 7,178
============ ==========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
NINE-MONTH TWELVE-MONTH
PERIOD PERIOD
NOVEMBER 30 ENDED ENDED
-------------------- AUGUST 31, AUGUST 31,
1994 1995 1996 1996
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at beginning of year............ $ -- $ -- $ 30 $ --
Additions charged to costs and
expenses.............................. 22 57 27 84
Deductions for uncollectible receivables
written off........................... (22) (27) -- (27)
--------- --------- --- ------------
$ -- $ 30 $ 57 $ 57
========= ========= === ============
</TABLE>
The major components of inventories are as follows:
NOVEMBER 30, AUGUST 31,
1995 1996
------------ ----------
Lumber, hardware and fasteners.......... $3,197 $2,519
Finished goods.......................... 92 356
------------ ----------
$3,289 $2,875
============ ==========
Accrued expenses consist of the following:
NOVEMBER 30, AUGUST 31,
1995 1996
------------ ----------
Accrued compensation and benefits....... $ 574 $ 910
Accrued taxes........................... 127 361
Other accrued expenses.................. 153 209
------------ ----------
$ 854 $1,480
============ ==========
F-15
<PAGE>
FRASER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
5. DEBT:
The Company's borrowings under a $3,000,000 revolving line of credit with a
bank bear interest, payable monthly, at prime (8.25 percent at August 31, 1996)
and matures in April 1997. The line of credit is secured by inventory, machinery
and equipment. At November 30, 1995 and August 31, 1996, borrowings outstanding
under the line of credit were approximately $2,950,000 and $955,000,
respectively.
Long-term debt consists of the following:
NOVEMBER 30, AUGUST 31,
1995 1996
------------ ----------
Note payable to a bank, bearing interest
at prime (8.25% August 31, 1996),
payable monthly, principal payments of
$50,000 per month through maturity in
April 1998. Secured by substantially
all assets of the Company and
personally guaranteed by the
stockholders.......................... $2,250 $1,800
Notes payable to related parties,
bearing interest at 14% per annum,
payable monthly, through maturity in
January 2005.......................... 65 62
Notes payable to stockholders, bearing
interest at 8% to 10% per annum,
payable annually, through maturities
ranging from December 1996 to December
1997.................................. 641 464
Capital leases.......................... 14 10
------------ ----------
2,970 2,336
Less -- Current maturities.............. (608) (719)
------------ ----------
$2,362 $1,617
============ ==========
Future maturities of long-term obligations at August 31, 1996, are as
follows:
Year ending August 31 --
1997............................... $ 719
1998............................... 1,571
1999............................... 8
2000............................... 8
2001............................... 7
Thereafter......................... 23
---------
$ 2,336
=========
6. INCOME TAXES:
State income taxes are as follows:
<TABLE>
<CAPTION>
NINE-MONTH TWELVE-MONTH
YEAR ENDED PERIOD PERIOD
NOVEMBER 30 ENDED ENDED
---------------------- AUGUST 31, AUGUST 31,
1994 1995 1996 1996
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
State --
Current............................ $ -- $ 70 $ 162 $ 189
Deferred........................... 6 21 6 6
--------- --- ---------- ------------
$ 6 $ 91 $ 168 $ 195
========= === ========== ============
</TABLE>
F-16
<PAGE>
FRASER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
For the years ended November 30, 1994 and 1995, and the nine- and
twelve-month periods ended August 31, 1996, income tax expense is primarily
computed by applying a blended state tax rate of 5.2 percent to income before
income tax.
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences for the periods ended
November 30, 1995, and August 31, 1996, result principally from the following:
NOVEMBER 30, AUGUST 31,
1995 1996
------------ ----------
Deferred income tax liabilities --
Depreciation and amortization...... $ 35 $ 61
Accruals and reserves not
deductible until paid............ 14 17
Deferred income tax assets --
Inventory.......................... (4) (7)
Other assets....................... (8) (28)
--- ----------
Total deferred income tax (assets)
liabilities........................... $ 37 $ 43
=== ==========
7. GRANT RECEIVABLE:
The Company entered into an agreement with New Boston Special Industrial
Development Corporation of New Boston, Texas, in August 1993 in which the
Company is to receive a $200,000 grant (building grant) in exchange for building
a production facility and $200,000 grant (employment grant) for providing 100
full-time jobs for 10 years at the facility. In the event that a monthly average
of 90 full-time jobs are not maintained for the 10 years, the Company is
required to refund a portion of the grant. The refund calculation will be
performed at the end of five years and 10 years. The Company received the entire
$200,000 of the building grant in January 1994 and, through August 31, 1996, the
Company has received $120,000 of the employment grant, with $40,000 to be
received each August 1 through 1998. The building grant is recorded as deferred
income and is recognized in the statements of income as a reduction in
depreciation expense over the life of the facility using the straight-line
method. The employment grant is recorded as deferred income and is recognized in
the statements of income as a reduction in salaries expense over the 10-year
contractual life using the straight-line method.
8. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
F-17
<PAGE>
FRASER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
OPERATING LEASE AGREEMENTS
The Company conducts a portion of its operations and warehouses certain of
its products in leased facilities classified as operating leases.
Minimum future rental payments under the noncancelable operating leases as
of August 31, 1996, are as follows:
Year Ending August 31 --
1997............................ $ 719
1998............................ 521
1999............................ 185
2000............................ 5
---------
$ 1,430
=========
The leases provide for payment of taxes and other expenses by the Company.
Rent expense for operating leases was approximately $528,000 and $735,000 for
the nine-and twelve-month periods ended August 31, 1996, respectively, and
$477,000 and $294,000 in 1995 and 1994, respectively.
9. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments" and
SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its shareholders have entered into a definitive agreement
with PalEx providing for the acquisition of the Company by PalEx.
The Company intends to declare a contribution to its defined contribution
profit-sharing plan in an amount currently estimated to be approximately
$375,000. In connection with the acquisition, PalEx has agreed to satisfy the
Company's profit-sharing obligation through the issuance of approximately 50,000
shares of PalEx common stock. In addition, prior to the closing of the
acquisition, the Company will make distributions in respect of the Company's
estimated S Corporation Accumulated Adjustment Account at the time of closing in
the amount of approximately $3.3 million.
The Company is liable to a director of PalEx for an amount up to $50,000
for advisory services, which amount is payable upon completion of the
acquisition of the Company by PalEx.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ridge Pallets, Inc.:
We have audited the accompanying balance sheets of Ridge Pallets, Inc. (a
Florida corporation) (the "Company"), as of July 30, 1995, and July 28, 1996,
and the related statements of income, changes in stockholders' equity and cash
flows for the years then ended, and the statement of income, changes in
stockholders' equity and cash flows of the Predecessor Company (as defined in
Note 1) for the year ended July 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ridge Pallets, Inc. as of
July 30, 1995, and July 28, 1996 and the results of its operations and cash
flows for the years then ended, and the results of the Predecessor Company's
operations and cash flows for the year ended July 31, 1994, in conformity with
generally accepted accounting principles.
As explained in Note 1 to the financial statements, controlling ownership
of the Predecessor Company was acquired by stockholders of Ridge Pallets, Inc.
in a purchase transaction effective for accounting purposes as of August 1,
1994. The acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets and liabilities of the Predecessor
Company based on their estimated fair values at August 1, 1994. Accordingly, the
financial statements of Ridge Pallets, Inc. are not comparable to those of the
Predecessor Company.
ARTHUR ANDERSEN LLP
Houston, Texas
December 8, 1996
F-19
<PAGE>
RIDGE PALLETS, INC.
BALANCE SHEETS -- JULY 30, 1995, JULY 28, 1996, AND OCTOBER 29, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
JULY 30, JULY 28, OCTOBER 29,
1995 1996 1996
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 4,259 $ 1,250 $ 34
Accounts receivable, net of
allowance of $155, $123 and
$88.............................. 2,560 3,376 3,735
Inventories........................ 4,228 3,687 4,722
Other current assets............... 350 144 120
--------- --------- -----------
Total current assets.......... 11,397 8,457 8,611
PROPERTY, PLANT AND EQUIPMENT, net...... 5,211 6,151 6,626
OTHER ASSETS............................ 1,055 1,101 824
--------- --------- -----------
Total assets.................. $ 17,663 $ 15,709 $16,061
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt............................. $ 1,050 $ 1,050 $ 1,650
Accounts payable................... 338 796 868
Accrued expenses................... 780 1,003 946
Dividends payable.................. 1,050 -- --
--------- --------- -----------
Total current liabilities..... 3,218 2,849 3,464
LONG-TERM DEBT, net of current
maturities............................ 12,221 8,600 8,600
--------- --------- -----------
Total liabilities............. 15,439 11,449 12,064
--------- --------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value,
5,000,000 shares authorized;
483,000 shares and 549,500 shares
issued and outstanding for 1995
and 1996, respectively........... 483 550 550
Additional paid-in capital......... 179 496 496
Retained earnings.................. 1,562 3,214 2,951
--------- --------- -----------
Total stockholders' equity.... 2,224 4,260 3,997
--------- --------- -----------
0 Total liabilities and
stockholders' equity....... $ 17,663 $ 15,709 $16,061
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
RIDGE PALLETS, INC.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED JULY 31, 1994, JULY 30, 1995, AND JULY 28, 1996
AND FOR THE THREE MONTHS ENDED OCTOBER 27, 1995 AND OCTOBER 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
THE --------------------------------------------------
PREDECESSOR THREE MONTHS ENDED
COMPANY --------------------------
JULY 31, JULY 30, JULY 28, OCTOBER 27, OCTOBER 29,
1994 1995 1996 1995 1996
----------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $47,946 $ 54,450 $ 48,341 $10,499 $10,059
COST OF GOODS SOLD...................... 40,606 46,388 40,540 9,024 9,171
----------- -------- -------- ----------- -----------
Gross profit....................... 7,340 8,062 7,801 1,475 888
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 4,018 3,826 3,825 1,033 985
----------- -------- -------- ----------- -----------
Income from operations............. 3,322 4,236 3,976 442 (97)
INTEREST EXPENSE........................ (80) (962) (1,032) (267) (192)
OTHER INCOME (EXPENSE), net............. 922 101 199 64 20
----------- -------- -------- ----------- -----------
INCOME BEFORE INCOME TAXES.............. 4,164 3,375 3,143 239 (269)
PROVISION (BENEFIT) FOR INCOME TAXES.... 99 83 76 6 (6)
----------- -------- -------- ----------- -----------
NET INCOME.............................. $ 4,065 $ 3,292 $ 3,067 $ 233 $ (263)
=========== ======== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
RIDGE PALLETS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1994, JULY 30, 1995, AND JULY 28, 1996
AND THROUGH OCTOBER 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
THE PREDECESSOR COMPANY:
Balance, July 26, 1993.......... 1,875 $ 1,875 $-- 13,402 $ 15,277
Stock issued.................... 27 27 64 -- 91
Net income...................... -- -- -- 4,065 4,065
Dividends....................... -- -- -- (1,503) (1,503)
Stock redemption................ (27) (27) (64) (131) (222)
--------- --------- ---------- --------- ---------
Balance, July 31, 1994.......... 1,875 $ 1,875 $-- $ 15,833 $ 17,708
========= ========= ========== ========= =========
THE COMPANY:
Balance -- initial
capitalization, August 1,
1994.......................... 350 $ 350 $-- $ -- $ 350
Stock issued.................... 133 133 179 -- 312
Net income...................... -- -- -- 3,292 3,292
Dividends....................... -- -- -- (1,730) (1,730)
--------- --------- ---------- --------- ---------
Balance, July 30, 1995.......... 483 483 179 1,562 2,224
Stock issued.................... 67 67 317 -- 384
Net income...................... -- -- -- 3,067 3,067
Dividends....................... -- -- -- (1,415) (1,415)
--------- --------- ---------- --------- ---------
Balance, July 28, 1996.......... 550 550 496 3,214 4,260
Net loss (unaudited)............ -- -- -- (263) (263)
--------- --------- ---------- --------- ---------
Balance, October 27, 1996....... 550 $ 550 $ 496 $ 2,951 $ 3,997
========= ========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
RIDGE PALLETS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1994, JULY 30, 1995, AND JULY 28, 1996
AND FOR THE THREE MONTHS ENDED OCTOBER 27, 1995 AND OCTOBER 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
THE -------------------------------------------------
PREDECESSOR THREE MONTHS ENDED
COMPANY -------------------------
JULY 31, JULY 30, JULY 28, OCTOBER 27, OCTOBER 29,
1994 1995 1996 1995 1996
----------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)................... $ 4,065 $3,292 $ 3,067 $ 233 $ (263)
----------- -------- -------- ----------- -----------
Additions (deductions) for noncash
activities --
Depreciation and
amortization................. 1,182 605 734 166 200
(Gain) loss on sale of
property, plant and
equipment.................... (6) 13 -- -- --
Deferred income taxes.......... 4 45 (2 ) -- --
Changes in assets and
liabilities --
Accounts receivable........ (646) 1,340 (816 ) (1,140) (359)
Inventories................ 103 167 541 (1,700) (1,035)
Prepaid expenses and other
current assets........... (115) 10 206 24 24
Other assets............... (415) (275) (49 ) 32 103
Accounts payable........... 75 (229) 458 298 73
Accrued expenses........... (899) 35 229 182 116
----------- -------- -------- ----------- -----------
(717) 1,711 1,301 (2,138) (878)
----------- -------- -------- ----------- -----------
Net cash provided by
(used in) operating
activities.......... 3,348 5,003 4,368 (1,905) (1,141)
----------- -------- -------- ----------- -----------
CASH FROM INVESTING ACTIVITIES:
Proceeds from sale of property,
plant and equipment............... 64 223 90 -- --
Proceeds from redemption of
insurance policies................ 669 -- -- -- --
Purchase of property, plant and
equipment......................... (892) (899) (1,765 ) (308) (675)
----------- -------- -------- ----------- -----------
Net cash used in
investing
activities.......... (159) (676) (1,675 ) (308) (675)
----------- -------- -------- ----------- -----------
CASH FROM FINANCING ACTIVITIES:
Issuance of common stock............ 91 312 384 (1,147) --
Dividends paid...................... (1,540) (680) (2,465 ) (1,010) --
Payment of long-term debt........... (50) (50) (3,621 ) -- --
Redemption of common stock.......... (222) -- -- -- --
Net borrowings on line of credit.... -- -- -- -- 600
Other............................... (59) -- -- -- --
----------- -------- -------- ----------- -----------
Net cash provided by
(used in) financing
activities.......... (1,780) (418) (5,702 ) (2,157) 600
----------- -------- -------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 1,409 3,909 (3,009 ) (4,370) (1,216)
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 2,263 350 4,259 4,259 1,250
----------- -------- -------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 3,672 $4,259 $ 1,250 $ (111) $ 34
=========== ======== ======== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest....................... $ 37 $ 816 $ 1,018 $ 237 $ 199
Income taxes................... 66 69 90 6 0
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
RIDGE PALLETS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
On August 1, 1994, The FMP Group, Inc., purchased from Ridge Pallets, Inc.
(the "Predecessor Company"), substantially all of its assets used in the
pallet and bin manufacturing business and the name "Ridge Pallets, Inc.," for
notes payable of approximately $12,600,000 and the assumption of approximately
$1,800,000 in liabilities. Simultaneously with the transaction, the seller
changed its name to Ridge Resources, Inc., and The FMP Group, Inc., changed its
name to Ridge Pallets, Inc. (the "Company"). The statements of income,
stockholders' equity and cash flows for the year ended July 31, 1994, represent
those of the Predecessor Company prior to the purchase by the Company. As a
result of the transaction, the cost bases of the Predecessor Company and the
Company are different, as discussed further below. References to the Company
hereinafter may also include periods prior to August 1, 1994.
The Company is a manufacturer of wooden pallets and agricultural harvesting
boxes and bins. Manufacturing facilities are located in Florida, Georgia and
South Carolina, with the Company's headquarters located in Bartow, Florida.
Sales of the Company's products are primarily in Florida and the Southeastern
United States. The Company's customer base is approximately 40 percent
agricultural, with the balance comprised of the cement, roof and tile, auto,
grocery, beverage and seafood industries.
The Company and its stockholders intend to enter into a definitive
agreement with PalEx, Inc. ("PalEx"), pursuant to which all outstanding shares
of the Company's common stock will be exchanged for cash and shares of PalEx
common stock concurrent with the consummation of the initial public offering of
the common stock of PalEx.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR
The fiscal year of the Company is a 52-week or 53-week period that ends on
the last Sunday in July. The years ended July 31, 1994, July 30, 1995, and July
28, 1996, were 53-, 52- and 52-week periods, respectively.
INTERIM FINANCIAL INFORMATION
The interim financial statements are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the consolidated interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out basis or by specific identification. The cost of
finished goods inventory includes direct material, direct labor and overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation for the
year ended July 31, 1994, was calculated using an accelerated method.
Depreciation for the years ended July 30, 1995, and July 28, 1996, is provided
on the straight-line method based upon the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to operating expense
as incurred. Additions and major replacements or betterments that increase
capacity or extend useful lives are added to the cost of the asset. Upon sale or
retirement of property and equipment, the cost and related accumulated
depreciation are
F-24
<PAGE>
RIDGE PALLETS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
eliminated from the respective accounts and the resulting gain or loss is
included in other income (expense), net.
INCOME TAXES
The stockholders of the Company have elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under these provisions,
the Company does not pay federal and certain state income taxes. Instead, the
Company's stockholders pay income taxes on their proportionate shares of the
Company's net earnings. The provision for income taxes is composed entirely of
state income taxes.
CASH EQUIVALENTS
For purposes of the statements of cash flows and balance sheets, the
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
NONCASH ACTIVITIES
In fiscal year 1995, the Company issued notes payable of approximately
$12,600,000 and assumed approximately $1,800,000 of liabilities in connection
with the acquisition of the pallet and bin manufacturing business of Ridge
Resources, Inc. The assets acquired were recorded at fair value as follows:
(IN THOUSANDS)
--------------
Property, plant and equipment........ $ 5,372
Inventories.......................... 4,394
Accounts receivable.................. 3,899
Other assets......................... 720
Goodwill............................. 23
--------------
$ 14,408
==============
In addition, dividends of $1,050,000 were included in dividends payable at
July 30, 1995. Accordingly, these noncash investing and financing activities
have been excluded from the accompanying statements of cash flows.
The Predecessor Company maintained deferred compensation agreements with
shareholders and key members of management through July 31, 1994. The agreements
were terminated in connection with the formation of the Company. The Predecessor
Company recognized a gain of approximately $631,000 upon cancellation of the
deferred compensation liability, which has been reflected in other income
(expense), net for the year ended July 31, 1994.
REVENUE RECOGNITION
The Company recognizes revenues upon delivery of the product to the
customer.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived
F-25
<PAGE>
RIDGE PALLETS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Assets to Be Disposed Of." This statement establishes the recognition and
measurement standards related to the impairment of long-lived assets. The
Company will be required to adopt this standard during fiscal 1997. It is the
opinion of management that the adoption of this standard will not have a
material effect on the Company's financial position or results of operations.
CONCENTRATIONS OF RISK
MATERIALS -- Pallet prices are closely related to the changing costs and
availability of lumber, the principal raw material used in the manufacture and
repair of wooden pallets. Lumber supplies and costs are affected by many factors
including weather, governmental regulation of logging on public lands, lumber
agreements between Canada and the United States and competition from other
industries that use similar grades and types of lumber. The Company received
approximately 40 percent, 39 percent and 46 percent of its lumber purchases from
two suppliers in 1994, 1995 and 1996, respectively.
MARKETS -- Markets for pallet manufacturing and repair services are highly
fragmented and competitive. Pallet manufacturing and recycling operations are
not capital-intensive; therefore, barriers to entry in such businesses are
minimal.
CUSTOMERS -- The Company's sales are made to customers with local, regional
and national operations in many different industries and geographical locations.
Of such customers, one customer accounted for approximately 17 percent, 22
percent and 21 percent of revenues in 1994, 1995 and 1996. As of July 28, 1996,
the customer had an outstanding accounts receivable balance which represented
approximately 10 percent of total accounts receivable.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
ESTIMATED
USEFUL
LIVES JULY 30, JULY 28,
IN YEARS 1995 1996
----------- -------- --------
(IN THOUSANDS)
Land.................................... - $ 721 $ 721
Machinery and equipment................. 7 - 10 2,033 2,675
Vehicles and rolling stock.............. 5 694 1,141
Buildings and building improvements..... 15 - 40 2,229 2,608
Furniture and fixtures.................. 5 - 10 124 277
Less -- Accumulated depreciation........ (590) (1,271)
-------- --------
Property, plant and equipment, net...... $ 5,211 $ 6,151
======== ========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
The major components of inventories are as follows:
JULY 30, JULY 28,
1995 1996
--------- ---------
(IN THOUSANDS)
Lumber, hardware and fasteners....... $ 3,701 $ 3,054
Work in process...................... 88 85
Finished goods....................... 439 548
--------- ---------
$ 4,228 $ 3,687
========= =========
F-26
<PAGE>
RIDGE PALLETS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the Company's allowance for doubtful accounts consists of the
following:
JULY 30, JULY 28,
1995 1996
--------- ---------
(IN THOUSANDS)
Balance at beginning of the year..... $ 35 $ 155
Additions charged to expense
(recoveries)......................... 120 (5)
Deductions for uncollectible
receivables written off.............. -- (27)
--------- ---------
$ 155 $ 123
========= =========
Other assets are as follows:
JULY 30, JULY 28,
1995 1996
--------- ---------
(IN THOUSANDS)
Certificate of deposit, restricted... $ 535 $ 554
Cash surrender value of officers'
life insurance....................... 130 146
Notes receivable..................... 131 90
Other assets......................... 259 311
--------- ---------
$ 1,055 $ 1,101
========= =========
Accrued expenses consist of the following:
JULY 30, JULY 28,
1995 1996
--------- ---------
(IN THOUSANDS)
Accrued workers' compensation........ $ 250 $ 250
Accrued salaries and benefits........ 90 378
Accrued interest payable............. 140 133
Accrued taxes........................ 110 81
Other accrued expenses............... 190 161
--------- ---------
$ 780 $ 1,003
========= =========
5. DEBT:
The Company maintains a $4 million line of credit which expires in June
1997. There were no borrowings on the line as of July 30, 1995, and July 28,
1996. Provisions of the line of credit contain certain restrictive covenants,
the most restrictive of which requires the Company to maintain a net worth of at
least $250,000. The borrowings are collateralized by the personal guarantees of
six of the Company's shareholders. The interest rate is at prime (prime rate was
8.25 percent at July 28, 1996).
F-27
<PAGE>
RIDGE PALLETS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consisted of the following:
JULY 30, JULY 28,
1995 1996
--------- ---------
(IN THOUSANDS)
Notes payable to Ridge Resources,
Inc. and its shareholders, at
prime, interest due quarterly,
principal due in annual
installments totaling $1,000,000 to
$1,500,000, maturing January 3,
2000, and collateralized by
property, plant, equipment,
receivables and inventory and
secured by shares of the Company
held by six shareholders........... $ 12,571 $ 9,000
Industrial development bond, interest
variable, approximating 80 percent
of prime, interest due monthly,
$50,000 principal due annually;
collateralized by property, plant
and equipment and a standby letter
of credit from a bank in the amount
of $695,000........................ 700 650
--------- ---------
13,271 9,650
Less -- Current portion.............. (1,050) (1,050)
--------- ---------
Total long-term debt............ $ 12,221 $ 8,600
========= =========
The aggregate principal maturities for each of the next five fiscal years
are as follows (in thousands):
Fiscal year ending --
1997............................ $ 1,050
1998............................ 1,550
1999............................ 1,550
2000............................ 5,050
2001............................ 50
Thereafter...................... 400
---------
$ 9,650
=========
6. INCOME TAXES:
State income taxes are as follows:
JULY 31, JULY 30, JULY 28,
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
State --
Current......................... $ 95 $ 38 $ 78
Deferred........................ 4 45 (2)
--- --- ---
$ 99 $ 83 $ 76
=== === ===
For the years ended 1994, 1995 and 1996, actual income tax expense is
primarily computed by applying the blended state tax rate of 2.4 percent to
income before income tax.
F-28
<PAGE>
RIDGE PALLETS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences for the years ended
1995 and 1996 result principally from the following:
JULY 30, JULY 28,
1995 1996
-------- --------
(IN THOUSANDS)
Deferred income tax liabilities --
Depreciation and amortization...... $ 3 $ 9
Fiscal year-end deferral........... 48 44
Deferred income tax assets --
Inventory.......................... (3) (3)
Other assets....................... (4) (7)
--- ---
Net current deferred income
tax liabilities........... $ 44 $ 43
=== ===
7. RELATED-PARTY TRANSACTIONS:
The Company is related to Sunbelt Forest Products Corporation ("Sunbelt")
and Ridge Resources, Inc., through certain common ownership, officers and
directors.
The following amounts are included in the statements of income:
YEARS ENDED
----------------------------------
JULY 31, JULY 30, JULY 28,
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
Sales to Sunbelt........................ $ 977 $ 484 $ 666
Purchases from Sunbelt.................. -- 11
Accounting and managerial services
revenue from Sunbelt.................. 135 75 55
Purchases from Ridge Resources, Inc..... 199 421
Interest income from Sunbelt............ 193 -- --
Interest expense to Ridge Resources,
Inc................................... -- 909 982
The following amounts are included in the balance sheets:
JULY 30, JULY 28,
1995 1996
-------- --------
(IN THOUSANDS)
Accounts receivable from Sunbelt........ $ 7 $ 6
Due from Ridge Resources, Inc........... 5 1
Note payable to Ridge Resources, Inc.... 12,571 9,000
8. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company has a workers' compensation and general liability policy,
subject to a $250,000 deductible. As such, any claim within the first $250,000
per incident would be the financial obligation of the Company. In addition, the
policy limits coverage to $850,000 per year. The Company maintains a
F-29
<PAGE>
RIDGE PALLETS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
certificate of deposit as security in the amount of approximately $554,000,
which is included in other assets at July 28, 1996.
The accrued insurance claims payable represents management's estimate of
the Company's potential claims costs in satisfying the deductible provisions of
the insurance policy for claims occurring through July 28, 1996. The accrual is
based upon known facts and historical trends, and management believes such
accrual to be adequate.
The Company self-insures its employees' health insurance program. A trust
was established in July 1983 to administer this program. Effective August 1,
1994, the Company became the new trust sponsor. By agreement between the Company
and the trust, the Company must contribute sufficient funds to the trust to
ensure that the trust has sufficient monies to pay claims as provided in the
employee health insurance plan document. The Company contributed $205,000,
$185,000 and $145,000 in fiscal years 1994, 1995 and 1996, respectively. Health
insurance expense was $198,000, $192,000 and $145,000 in fiscal years 1994, 1995
and 1996, respectively.
The trust obtained tax-exempt status from the Internal Revenue Service
during 1985. Its trustees are employees of the Company.
9. PROFIT-SHARING PLAN:
The Company maintains a qualified profit-sharing plan. Company
contributions are voluntary and at the discretion of the board of directors.
Annual contributions, in order to be deductible for income tax purposes by the
Company, cannot exceed 15 percent of salaries and wages.
Effective January 1, 1995, the Company amended the Plan to qualify under
Internal Revenue Code Section 401(k). In accordance with the Plan, the Company
will match 50 percent of employee 401(k) contributions, not to exceed 4 percent
of the employee's qualified compensation related to the Plan.
Total profit-sharing and 401(k) expense was $400,000 for fiscal years 1994,
1995 and 1996.
10. DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments" and
SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
11. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its shareholders have entered into a definitive agreement
with PalEx providing for the acquisition of the Company by PalEx.
The Company intends to declare a contribution to its defined contribution
profit-sharing plan in an amount currently estimated to be approximately
$619,000. In connection with the acquisition, PalEx has agreed to satisfy the
Company's profit-sharing obligation through the issuance of approximately 82,500
shares of PalEx common stock. In addition, prior to the closing of the
acquisition, the Company will make distributions in respect of the Company's
estimated S Corporation Accumulated Adjustment Account at the time of closing in
the amount of approximately $4.5 million.
The Company is also liable to an investment banking firm for an amount up
to $468,000 for financial advisory services upon the completion of the
acquisition of the Company by PalEx.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PalEx, Inc.:
We have audited the accompanying balance sheet of PalEx, Inc. (a Delaware
corporation), as of August 31, 1996. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of PalEx, Inc., as of August 31, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
December 15, 1996
F-31
<PAGE>
PALEX, INC.
BALANCE SHEET -- AUGUST 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CASH AND CASH EQUIVALENTS............... $ 1
---------
Total assets.................. $ 1
=========
STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY:
Preferred stock $.01 par value,
5,000,000 shares authorized, no
shares issued..................... --
Common stock, $.01 par, 30,000,000
shares authorized, 1,021,389
shares issued..................... $ 10
Retained deficit................... (9)
---------
Total stockholder's equity.... 1
---------
Total stockholder's equity.... $ 1
=========
The accompanying notes are an integral part of this financial statement.
F-32
<PAGE>
PALEX, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
PalEx, Inc. ("PalEx" or the "Company"), was founded in January 1996 to
create a nationwide provider of pallet products and related services. PalEx
intends to acquire three U.S. pallet businesses (the "Acquisitions"), complete
an initial public offering (the "Offering") of its common stock and, subsequent
to the Offering, continue to acquire, through merger or purchase, similar
companies to expand its national operations.
PalEx has not conducted any operations, and all activities to date have
related to the acquisitions and the initial public offering ("IPO"). Cash of
$1,000 was generated from the initial capitalization of the Company (see Note
2). All other expenditures to date have been funded by the majority stockholder,
Main Street Capital Partners, L.P. ("Main Street"), on behalf of the Company.
Accordingly, changes in stockholder's equity and cash flows would not provide
meaningful information and have been omitted. There is no assurance that the
pending acquisitions discussed below will be completed and that PalEx will be
able to generate future operating revenues. Main Street has committed to fund
the first $1.25 million of offering costs. PalEx will treat these costs as
deferred costs and contributed capital as incurred by Main Street. As of
November 30, 1996, management estimates costs of approximately $300,000
(unaudited) had been incurred by Main Street in connection with the IPO. PalEx
is dependent upon the IPO to execute the pending acquisitions and future
operations.
2. STOCKHOLDER'S EQUITY:
In connection with the organization and initial capitalization of PalEx,
the Company issued 1,000 shares of common stock for $1,000 (see Note 3).
3. SUBSEQUENT EVENTS:
In December 1996, PalEx declared a stock dividend of approximately 1,021
shares of common stock for each share of common stock then outstanding. In
addition, PalEx increased the number of authorized shares of common stock to
30,000,000 shares and authorized 5,000,000 shares of $.01 par value preferred
stock. The effects of the common stock dividend and the increase in the number
of common shares authorized have been retroactively reflected on the balance
sheet and in the accompanying notes.
In November 1996, the Company issued 50,000 shares (after reflecting the
stock dividend) of its common stock to the Chief Executive Officer at an
aggregate price of $500. The Company will record a nonrecurring, noncash charge
of approximately $300,000 representing the difference between the amounts paid
for the shares and the estimated fair value of the shares on the date of the
sale as if the Acquisitions were completed.
PalEx and separate wholly owned subsidiaries have signed definitive
agreements to acquire by merger three companies (Founding Companies) to be
effective with the IPO. The companies to be acquired are Fraser Industries, Inc.
(Fraser), Ridge Pallets, Inc. (Ridge), and Interstate Pallets, Inc.
(Interstate). Consideration that will be paid by PalEx to acquire the Founding
Companies is approximately $49.7 million (unaudited) (based upon an offering
price of $10 per share (unaudited), net of a 25 percent discount) consisting of
a combination of cash and common stock.
As of September 1, 1996, Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," will be effective for the
Company. SFAS No. 123 allows entities to choose between a new fair value based
method of accounting for employee stock options or similar equity instruments
and the current intrinsic, value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 (APB No. 25). Entities electing to
remain with the accounting in APB Opinion No. 25 must make pro forma disclosures
of net income and earnings per share as if the fair value method of accounting
had been applied. As permitted by SFAS No. 123, the Company will provide pro
forma disclosure of net income and earnings per share, as applicable, in the
notes to future consolidated financial statements.
F-33
<PAGE>
PALEX, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has authorized the issuance of 1,800,000 shares of its common
stock in accordance with its stock option plan. The Company intends to file a
registration statement on Form S-8 under the Securities Act registering the
issuance of shares upon exercise of options granted under the Plan. The Company
expects to grant options to purchase a total of 725,000 shares of common stock
at the initial public offering price upon consummation of the Offering. The
Chief Executive Officer was also granted 200,000 options to purchase PalEx
common stock, 100,000 of which may be purchased at $7.50 per share and the
remaining 100,000 which may be purchased at the IPO price.
4. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On December 23, 1996, PalEx filed a registration statement on Form S-1 for
the sale of its common stock. See "Risk Factors" included elsewhere herein.
In connection with the Acquisitions, PalEx will assume certain obligations
of the Founding Companies. Additionally, in connection with the Acquisitions,
PalEx has agreed to satisfy the Founding Companies profit-sharing obligations
totalling approximately $1.1 million through the issuance of approximately
142,500 shares of PalEx common stock.
F-34
<PAGE>
================================================================================
No person has been authorized in connection with the offering made hereby
to give any information or to make any representation not contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................................................... 3
Risk Factors............................................................ 8
The Company............................................................. 12
Use of Proceeds......................................................... 13
Dividend Policy......................................................... 13
Capitalization.......................................................... 14
Dilution................................................................ 15
Selected Financial Data................................................. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................................... 18
Business................................................................ 25
Management.............................................................. 33
Certain Transactions.................................................... 38
Principal Stockholders.................................................. 41
Description of Capital Stock............................................ 42
Shares Eligible for Future Sale......................................... 44
Underwriting............................................................ 46
Legal Matters........................................................... 47
Experts................................................................. 47
Additional Information.................................................. 47
Index to Financial Statements........................................... F-1
------------------------
Until , 1997, (25 days after the date of this Prospectus), all dealers effecting
transactions in the Common Stock offered hereby whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
3,000,000 SHARES
PalEx, Inc.
(Logo)
COMMON STOCK
PROSPECTUS
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY
SECURITIES
______________________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
SEC Registration Fee............................ $ 11,500
NASD Filing Fee ................................ 4,295
Listing Fee..................................... *
Accounting Fees and Expenses.................... *
Legal Fees and Expenses......................... *
Printing Expenses............................... *
Transfer Agent's Fees........................... *
Miscellaneous................................... *
-----------
Total................................ $ *
===========
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of section 145 of the General Corporation Law of the
State of Delaware (the "DGCL") empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or
officer of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145 in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of such person's heirs, executors and administrators; and
empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability
II-1
<PAGE>
asserted against him and incurred by him in any such capacity, or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL of the State of Delaware provides that
a certificate of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit.
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation states that:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article Eighth
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this Article
Eighth shall apply to, or have any effect on, the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal. If the DGCL is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
In addition, Article VI of the Company's Bylaws further provides
that the Company shall indemnify its officers, directors and employees to the
fullest extent permitted by law.
The Company intends to enter into indemnification agreements with
each of its executive officers and directors. The Company also intends to obtain
directors and officers liability insurance.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company, its officers and directors, and persons who control the
Company within the meaning of the Securities Act of 1933, as amended, against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of
securities by the Company during the past three years that were not registered
under the Securities Act of 1933. The description presented below gives effect
to the Company's recent reorganization and accompanying 1,021.389 for one stock
split on December 20, 1996.
(a) On January 8, 1996, the Company issued 1,021,389
shares of its Common Stock for an aggregate price of $1,000 to Main
Street Capital Partners, L.P. in connection with the Formation of
the Company.
(b) On November 6, 1996, the Company issued 50,000
shares of its Common Stock to Vance Maultsby, Jr. for an aggregate
price of $500 in connection with his hiring by the Company. In
connection with his hiring by the Company, Mr Maultsby received
options to purchase 100,000 shares of Common Stock at an exercise
price of $7.50 per share and options to purchase 100,000 shares of
Common Stock at an exercise price equal to the initial public
offering price.
(c) See "Certain Transactions" for a discussion of the
issuance of shares of Common Stock and options to purchase shares of
Common Stock in connection with the Acquisitions.
II-2
<PAGE>
These transactions were completed without registration under the
Securities Act of 1933 in reliance on the exemption provided by Section 4(2) of
the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
*1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of Incorporation.
3.2 -- Bylaws.
*4.1 -- Specimen Common Stock Certificate.
*5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
10.1 -- Agreement and Plan of Reorganization and Merger dated
as of December 20, 1996 between PalEx, Inc. and Ridge
Pallets, Inc.
10.2 -- Agreement and Plan of Reorganization and Merger dated
as of December 20, 1996 between PalEx, Inc. and Fraser
Industries, Inc.
10.3 -- Agreement and Plan or Reorganization and Merger dated
as of December 20, 1996 between PalEx, Inc. and
Interstate Pallet Co., Inc.
10.4 -- Form of Employment and Non-Competition Agreement.
*10.5 -- Form of Officer and Director Indemnification Agreement.
*10.6 -- PalEx, Inc. 1996 Stock Option Plan.
*23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of A. E. Holland, Jr. pursuant to Rule 438.
23.4 -- Consent of Troy O. Fraser pursuant to Rule 438.
23.5 -- Consent of Stephen C. Sykes pursuant to Rule 438.
23.6 -- Consent of Tucker S. Bridwell pursuant to Rule 438.
23.7 -- Consent of John E. Drury pursuant to Rule 438.
24.1 -- Powers of Attorney (included in signature page).
27 -- Financial Data Schedule
* To be filed by Amendment.
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ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under
the Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on December 23, 1996.
PALEX, INC.
By: /s/ VANCE K. MAULTSBY, JR.
Vance K. Maultsby, Jr., President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Vance K. Maultsby, Jr., Casey A. Fletcher
and Sam W. Humphreys, and each of them, his true and lawful attorneys-in-fact
and agents with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any subsequent
registration statements filed by the Registrant pursuant to Rule 462(b) of the
Securities Act of 1933, which relates to this Registration Statement, and to
file same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his or their substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VANCE K. MAULTSBY, JR. President and Chief Executive December 23, 1996
Vance K. Maultsby, Jr. Officer (Principal Executive
Officer)
/s/ CASEY A. FLETCHER Chief Accounting Officer December 23, 1996
Casey A. Fletcher (Principal Financial and
Accounting Officer)
/s/ SAM W. HUMPHREYS
Sam W. Humphreys Director December 23, 1996
II-5
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PALLET LOGISTICS, INC.
PALLET LOGISTICS, INC. (the "CORPORATION"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware ("DGCL"), hereby certifies as follows pursuant to Sections 242 and 245
of the DGCL:
1. The original Certificate of Incorporation of the Corporation was filed in the
Office of the Secretary of State of the State of Delaware (the "SECRETARY OF
STATE") on January 2, 1996.
2. The sole director and the stockholders of the Corporation, in accordance with
Sections 242 and 245 of the DGCL, adopted and approved this Amended and Restated
Certificate of Incorporation (including the amendments to the Corporation's
Certificate of Incorporation effected hereby).
3. Effective immediately upon the filing of this Amended and Restated
Certificate of Incorporation in the office of the Secretary of State, each
outstanding share of previously existing Common Stock, par value $1.00 per
share, shall be and hereby is converted into and reclassified as 1,021.389
shares of Common Stock, par value $0.01 per share. Certificates representing
reclassified shares are hereby canceled and upon presentation of the canceled
certificates to the Corporation, the holders thereof shall be entitled to
receive certificate(s) representing the new shares into which such canceled
shares have been converted.
4. The Certificate of Incorporation of the Corporation is hereby amended and
restated to read in its entirety as follows:
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is: PalEx, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington 19805, County of New
Castle. The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware ("DGCL").
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FOURTH: The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 35,000,000, of which 5,000,000
shares shall be Preferred Stock, par value $0.01 per share, and 30,000,000
shares shall be Common Stock, par value $0.01 per share.
A. PREFERRED STOCK. (1) Preferred Stock may be issued from time to
time in one or more series and in such amounts as may be determined by
the Board of Directors. The voting powers, designations, preferences
and relative, participating, optional or other special rights, if any,
and the qualifications, limitations or restrictions thereof, if any,
of the Preferred Stock of each series shall be such as are fixed by
the Board of Directors, authority so to do being hereby expressly
granted, and as are stated and expressed in a resolution or
resolutions adopted by the Board of Directors providing for the issue
of such series of Preferred Stock (herein called the "Directors'
Resolution"). The Directors' Resolution as to any series shall (a)
establish the number of shares constituting, and the distinctive
designation of, that series, (b) fix the dividend rate, if any, of the
shares of such series, the payment dates for dividends on shares of
such series and the date or dates, or the method of determining the
date or dates, if any, from which dividends on shares of such series
shall be cumulative, (c) fix the amount or amounts payable on shares
of such series upon voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, (d) state the price
or prices or rate or rates, and adjustments, if any, at which, the
time or times and the terms and conditions upon which, the shares of
such series may be redeemed at the option of the Corporation or at the
option of the holder or holders of shares of such series or upon the
occurrence of a specified event, and state whether such shares may be
redeemed for cash, property or rights, including securities of the
Corporation or another entity; and such Directors' Resolution may (i)
limit the number of shares of such series that may be issued, (ii)
provide for a sinking fund for the purchase or redemption of shares of
such series and specify the terms and conditions governing the
operations of any such fund, (iii) grant voting rights to the holders
of shares of such series, provided that each share shall not have more
than one vote per share, (iv) impose conditions or restrictions upon
the creation of indebtedness of the Corporation or upon the issuance
of additional Preferred Stock or other capital stock ranking on a
parity therewith, or prior thereto, with respect to dividends or
distribution of assets upon liquidation, (v) impose conditions or
restrictions upon the payment of dividends upon, or the making of
other distributions to, or the acquisition of, shares ranking junior
to the Preferred Stock or to any series thereof with respect to
dividends or distributions of assets upon liquidation, (vi) state the
time or times, the price or prices or the rate or rates of exchange
and other terms, conditions and adjustments upon which shares of any
such series may be made convertible into, or exchangeable for, at the
option of the holder or the Corporation or upon the occurrence of a
specified event, shares of any other class or classes or of any other
series of Preferred Stock or any other class or classes of stock or
other securities of the Corporation, and (vii) grant such other
special rights and impose such qualifications, limitations or
restrictions thereon as shall be fixed by the Board of
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Directors, to the extent not inconsistent with this Article FOURTH and
to the full extent now or hereafter permitted by the laws of the State
of Delaware.
(2) Except as by law expressly provided, or except as may be provided
in any Directors' Resolution, the Preferred Stock shall have no right
or power to vote on any question or in any proceeding or to be
represented at, or to receive notice of, any meeting of stockholders
of the Corporation.
(3) Preferred Stock that is redeemed, purchased or retired by the
Corporation shall assume the status of authorized but unissued
Preferred Stock and may thereafter, subject to the provisions of any
Directors' Resolution providing for the issue of any particular series
of Preferred Stock, be reissued in the same manner as authorized but
unissued Preferred Stock.
B. COMMON STOCK. All shares of the Common Stock of the Corporation
shall be identical and except as otherwise required by law or as
otherwise provided in the Directors' Resolution or Resolutions, if
any, adopted by the Board of Directors with respect to any series of
Preferred Stock, the holders of the Common Stock shall exclusively
possess all voting power, and each share of Common Stock shall have
one vote.
FIFTH: The business and affairs of the Corporation shall be managed and
controlled by its Board of Directors. The number of directors constituting the
Board of Directors shall be fixed by the Board of Directors, but shall not be
less than three or more than 15.
At the expiration of the initial term of the directors, all of the directors
shall be elected to serve until the next annual meeting of stockholders and
until their successors are elected and qualified or until their earlier death,
resignation, removal or retirement. Any director elected or appointed to fill a
vacancy shall hold office for the remaining term. No decrease in the number of
directors constituting the Corporation's Board of Directors shall shorten the
term of any incumbent director. Any vacancy in the Board of Directors, whether
arising through death, resignation or removal of a director, or through an
increase in the number of directors, shall be filled by the majority vote of the
remaining directors.
A director of the Corporation may be removed only for cause and only upon the
affirmative vote of the holders of a majority of the outstanding capital stock
of the Corporation entitled to vote at an election of directors, subject to
further restrictions on removal, not inconsistent with this Article FIFTH, as
may be contained in the Bylaws.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
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Certificate of Incorporation applicable thereto, and such directors so elected
shall not be divided into classes unless expressly provided by such terms.
SIXTH: The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A. The Board of Directors is authorized to alter, amend or repeal the
Bylaws or adopt new Bylaws of the Corporation. The stockholders shall
not repeal or change the Bylaws of the Corporation unless such repeal
or change is approved by the affirmative vote of the holders of not
less than 80% of the total voting power of all shares of stock of the
Corporation entitled to vote in the election of directors, considered
for the purposes of this paragraph A as a single class.
B. Election of directors need not be by written ballot unless the
Bylaws so provide.
C. In addition to the powers herein or by statute expressly conferred
upon the Corporation's directors, the Corporation's directors are
hereby empowered to exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the statutes of Delaware, this
Certificate of Incorporation, and any Bylaws adopted by the
stockholders; PROVIDED, HOWEVER, that no Bylaws hereafter adopted
shall invalidate any prior act of the directors which would have been
valid if such Bylaws had not been adopted.
D. No action shall be taken by the stockholders except at an annual or
special meeting with prior notice and a vote. No action shall be taken
by the stockholders by written consent.
SEVENTH: The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
EIGHTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; PROVIDED, HOWEVER, that this Article EIGHTH
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this Article
EIGHTH shall apply to, or have any effect on, the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal. If the DGCL is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
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Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
NINTH: The provisions set forth in this Article NINTH and Articles FIFTH, SIXTH
and EIGHTH hereof may not be amended, altered, changed, repealed or rescinded in
any respect unless such action is approved by the affirmative vote of the
holders of not less than 80 percent of the total voting power of all shares of
stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Article NINTH as a single class. The voting
requirements contained in this Article NINTH and in Article SIXTH hereof shall
be in addition to voting requirements imposed by law, other provisions of this
Certificate of Incorporation or any designation of preferences in favor of
certain classes or series of shares of capital stock of the Corporation.
TENTH: Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under Section 291 of
Title 8 of the DGCL or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under Section 279 of Title
8 of the DGCL order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed for and on behalf of the Corporation by its
officers thereunto duly authorized as of December 20, 1996.
/s/ VANCE K. MAULTSBY, JR.
Vance K. Maultsby, Jr.,
Chief Executive Officer
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EXHIBIT 3.2
BYLAWS
OF
PALEX, INC.
<PAGE>
INDEX
PAGE
ARTICLE 1 OFFICES
Section 1.1 Principal Office.....................................1
Section 1.2 Registered Office....................................1
Section 1.3 Other Offices........................................1
ARTICLE II STOCKHOLDERS' MEETINGS
Section 2.1 Annual Meeting.......................................1
Section 2.2 Special Meetings.....................................2
Section 2.3 Notice of Meetings and Adjourned Meetings............2
Section 2.4 Voting Lists.........................................3
Section 2.5 Quorum...............................................4
Section 2.6 Organization.........................................4
Section 2.7 Voting...............................................5
Section 2.8 Authorization of Proxies.............................6
Section 2.9 Stockholders Entitled to Vote........................7
Section 2.10 Order of Business...................................7
Section 2.11 Action by Written Consent...........................7
Section 2.12 Inspectors of Election..............................7
Section 2.13 Notice of Stockholder Nominees......................8
Section 2.14 Stockholder Proposals..............................10
ARTICLE III DIRECTORS
Section 3.1 Management..........................................12
Section 3.2 Number and Term.....................................12
Section 3.3 Quorum and Manner of Action.........................13
Section 3.4 Vacancies...........................................14
Section 3.5 Resignations........................................14
Section 3.6 Removals............................................15
Section 3.7 Annual Meetings.....................................15
Section 3.8 Regular Meetings....................................15
Section 3.9 Special Meetings....................................15
Section 3.10 Organization of Meetings...........................16
Section 3.11 Place of Meetings..................................16
Section 3.12 Compensation of Directors..........................16
Section 3.13 Action by Unanimous Written Consent................17
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Section 3.14 Participation in Meetings by Telephone.............17
Section 3.15 Election of Directors by Class Vote of Holders
of Preferred Stock...........................................17
ARTICLE IV COMMITTEES OF THE BOARD
Section 4.1 Membership and Authorities..........................18
Section 4.2 Minutes.............................................18
Section 4.3 Vacancies...........................................19
Section 4.4 Telephone Meetings..................................19
Section 4.5 Action Without Meeting..............................19
ARTICLE V OFFICERS
Section 5.1 Number and Title....................................20
Section 5.2 Term of Office; Vacancies...........................20
Section 5.3 Removal of Elected Officers.........................20
Section 5.4 Resignations........................................20
Section 5.5 The Chairman of the Board...........................21
Section 5.6 Chief Executive Officer.............................21
Section 5.7 Chief Operating Officer.............................22
Section 5.8 Vice Presidents.....................................23
Section 5.9 Secretary...........................................23
Section 5.10 Assistant Secretaries..............................24
Section 5.11 Treasurer..........................................25
Section 5.12 Assistant Treasurers...............................25
Section 5.13 Subordinate Officers...............................25
Section 5.14 Salaries and Compensation..........................26
ARTICLE VI INDEMNIFICATION
Section 6.1 Indemnification of Directors and Officers...........26
ARTICLE VII CAPITAL STOCK
Section 7.1 Certificates of Stock...............................30
Section 7.2 Lost Certificates...................................31
Section 7.3 Fixing Date for Determination of Stockholders of
Record for Certain Purposes..................................32
Section 7.4 Dividends...........................................32
Section 7.5 Registered Stockholders.............................33
Section 7.6 Transfer of Stock...................................33
Section 7.7 Stock Options, Warrants, Etc........................33
ARTICLE VIII MISCELLANEOUS PROVISIONS
Section 8.1 Corporate Seal......................................34
Section 8.2 Fiscal Year.........................................34
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Section 8.3 Checks, Drafts, Notes...............................34
Section 8.4 Corporate Contracts and Instruments.................35
Section 8.5 Notice and Waiver of Notice.........................35
Section 8.6 Examination of Books and Records....................36
Section 8.7 Voting Upon Shares Held by the Corporation..........36
ARTICLE IX AMENDMENTS
Section 9.1 Amendment...........................................37
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PALEX, INC.
BYLAWS
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the Corporation
shall be in Houston, Texas.
SECTION 1.2 REGISTERED OFFICE. The registered office and registered agent
of the Corporation required to be maintained in the State of Delaware by the
General Corporation Law of the State of Delaware (the "DGCL") shall be as
designated from time to time by the appropriate filing by the Corporation in the
office of the Secretary of State of the State of Delaware.
SECTION 1.3 OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the holders of shares of
each class or series of stock as are entitled to notice thereof and to vote
thereat pursuant to applicable law and the
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Certificate of Incorporation for the purpose of electing directors and
transacting such other proper business as may come before it shall be held at
such time and at such place, within or without the State of Delaware, as may be
designated by the Board of Directors.
SECTION 2.2 SPECIAL MEETINGS. In addition to such special meetings as are
provided by law or the Certificate of Incorporation, special meetings of the
holders of any class or series or of all classes or series of the Corporation's
stock for any purpose or purposes, may be called at any time by the Chief
Executive Officer and shall be called by the Secretary at the written request,
or by resolution adopted by the affirmative vote, of a majority of the Board of
Directors, which request shall fix the date, time and place (within or without
the State of Delaware), and state the purpose or purposes of the proposed
meeting. Except to the extent specified in the Certificate of Incorporation or
the resolutions of the Board of Directors creating any class or series of
preferred stock of the Corporation, Stockholders of the Corporation may not call
a special meeting.
SECTION 2.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except as otherwise
provided by law, written notice of any meeting of Stockholders shall be given
either by personal delivery or by mail to each Stockholder of record entitled to
vote thereat. Notice of each meeting shall be in such form as is approved by the
Board of Directors and shall state the date, place and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, such written notice shall be given
not less than 10 nor more than 60 days before the date of the meeting. Except
when a Stockholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business on the grounds
that the meeting is not lawfully called or convened, presence in person or by
proxy of a Stockholder shall constitute a waiver of notice of such meeting.
Further, a written waiver of any
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notice required by law or by these Bylaws, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Except as otherwise provided by law, the business that may
be transacted at any such meeting shall be limited to and consist of the purpose
or purposes stated in such notice. If a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken;
PROVIDED, HOWEVER, that if the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each Stockholder of record entitled
to vote at the meeting.
SECTION 2.4 VOTING LISTS. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least 10 days before
each meeting of the Stockholders, a complete list of Stockholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of each and the number of shares held by each, which list, for
a period of 10 days prior to such meeting, shall be kept on file either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held, and such list shall be subject to inspection by
the Stockholders at any time during usual business hours. Such list shall also
be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any Stockholder for the duration of the meeting.
The original stock transfer books shall be PRIMA-FACIE evidence as to who are
the Stockholders entitled to examine such list or transfer books or to vote at
any meeting of Stockholders.
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SECTION 2.5 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the Corporation's
stock issued and outstanding and entitled to vote at a meeting, present in
person or represented by proxy, without regard to class or series, shall
constitute a quorum at all meetings of the Stockholders for the transaction of
business. If, however, such quorum shall not be present or represented at any
meeting of the Stockholders, the Chairman of the Board of Directors or other
person presiding over such meeting or the holders of a majority of such shares
of stock, present in person or represented by proxy, may adjourn any meeting
from time to time without notice other than announcement at the meeting, except
as otherwise required by these Bylaws, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally called. A holder of a share of the Corporation's
capital stock shall be treated as being present or represented at a meeting if
such holder is (i) present in person at the meeting or (ii) represented at the
meeting by a valid proxy, regardless of whether the instrument granting the
proxy is marked as casting a vote or abstaining, is left blank or does not
empower such proxy to vote with respect to some or all matters to be voted upon
at the meeting.
SECTION 2.6 ORGANIZATION. Meetings of the Stockholders shall be presided
over by the Chairman of the Board of Directors, if one shall be elected, or in
his absence, by the Chief Executive Officer, the Chief Operating Officer or by
any Senior Vice President, or, in the absence of any of such officers, by a
chairman to be chosen by a majority of the Stockholders entitled to vote at the
meeting who are present in person or by proxy. The Secretary, or, in his
absence, any Assistant
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Secretary or any person appointed by the individual presiding over the meeting,
shall act as secretary at meetings of the Stockholders.
SECTION 2.7 VOTING. Each Stockholder of record, as determined pursuant to
Section 2.9, who is entitled to vote in accordance with the terms of the
Certificate of Incorporation and in accordance with the provisions of these
Bylaws, shall, except to the extent specified in the Certificate of
Incorporation or any resolution adopted by the Board of Directors to establish
any series of Preferred Stock of the Corporation, be entitled to one vote, in
person or by proxy, for each share of stock registered in his name on the books
of the Corporation. Every Stockholder entitled to vote at any Stockholders'
meeting may authorize another person or persons to act for him by proxy duly
appointed by instrument in writing subscribed by such Stockholder and executed
not more than three years prior to the meeting, unless the proxy provides for a
longer period. Each proxy shall be revocable unless it expressly states therein
that it is irrevocable and, only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A Stockholder's attendance at
any meeting, when such Stockholder has theretofore given a proxy, shall not have
the effect of revoking such proxy unless such Stockholder shall in writing so
notify the Secretary of the meeting prior to the voting of the proxy. Unless
otherwise provided by law, no vote on the election of directors or any question
brought before the meeting need be by ballot unless the chairman of the meeting
shall determine that it shall be by ballot or the holders of a majority of the
shares of stock present in person or by proxy and entitled to participate in
such vote shall so demand. In a vote by ballot, each ballot shall state the
number of shares voted and the name of the Stockholder or proxy voting. Except
as otherwise provided by law, by the Certificate of Incorporation or these
Bylaws, (i) action on a matter (other than the election of directors) shall be
approved if the votes cast by holders of
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shares of stock present and entitled to vote on the matter at a meeting at which
a quorum is present in favor of the matter exceed the votes cast opposing the
matter and (ii) directors shall be elected by a plurality of the votes cast by
the holders of shares present and entitled to vote in the election at a meeting
at which a quorum is present. In the election of directors, votes may not be
cumulated. In determining the number of votes cast, shares abstaining from
voting or not voted on a matter (including director elections) will not be
treated as votes cast.
SECTION 2.8 AUTHORIZATION OF PROXIES. Without limiting the manner in which
a Stockholder may authorize another person or persons to act for him as proxy,
the following are valid means of granting such authority. A Stockholder may
execute a writing authorizing another person or persons to act for him as proxy.
Execution may be accomplished by the Stockholder or his authorized officer,
director, employee or agent signing such writing or causing his or her signature
to be affixed to such writing by any reasonable means including, but not limited
to, by facsimile signature. A Stockholder may also authorize another person or
persons to act for him as proxy by transmitting or authorizing the transmission
of a telegram, cablegram or other means of electronic transmission must either
set forth or be submitted with information from which it can be determined that
the telegram, cablegram or other electronic transmission was authorized by the
Stockholder. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied. Any copy, facsimile telecommunication or
other reliable reproduction of the writing or transmission created pursuant to
this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the writing or
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transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 2.9 STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors may fix
a date not more than 60 days nor less than 10 days prior to the date of any
meeting of Stockholders as a record date for the determination of the
Stockholders entitled to notice of and to vote at such meeting and any
adjournment thereof, and in such case such Stockholders and only such
Stockholders as shall be Stockholders of record on the date so fixed shall be
entitled to notice of and to vote at, such meeting and any adjournment thereof
notwithstanding any transfer of any stock on the books of the Corporation after
such record date fixed as aforesaid.
SECTION 2.10 ORDER OF BUSINESS. The order of business at all meetings of
Stockholders shall be as determined by the chairman of the meeting or as is
otherwise determined by the vote of the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote without regard to class
or series at the meeting.
SECTION 2.11 ACTION BY WRITTEN CONSENT. No action required or permitted to
be taken by the Stockholders shall be taken except at an annual or special
meeting with prior notice and a vote. No action may be taken by the Stockholders
by written consent.
SECTION 2.12 INSPECTORS OF ELECTION. Before any meeting of Stockholders,
the Board of Directors may, and if required by law shall, appoint one or more
persons to act as inspectors of election at such meeting or any adjournment
thereof. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and if required by law or
requested by any Stockholder entitled to vote or his proxy shall, appoint a
substitute inspector. If no inspectors are appointed by the Board of Directors,
the chairman of the meeting may, and if required by law
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or requested by any Stockholder entitled to vote or his proxy shall, appoint one
or more inspectors at the meeting. Notwithstanding the foregoing, inspectors
shall be appointed consistent with Section 231 of the DGCL. Inspectors may
include individuals who serve the Corporation in other capacities (including as
officers, employees, agents or representatives); PROVIDED, HOWEVER, that no
director or candidate for the office of director shall act as an inspector.
Inspectors need not be Stockholders. The inspectors shall (i) determine the
number of shares of capital stock of the Corporation outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum and the validity and effect of proxies and (ii) receive votes or
ballots, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes and ballots, determine the
results and do such acts as are proper to conduct the election or vote with
fairness to all Stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
The inspectors shall have such other duties as may be prescribed by Section 231
of the DGCL.
SECTION 2.13 NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.13 shall
be eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of the Corporation's Stockholders (a) by or at the direction of the
Board of Directors or (b) by any Stockholder of the Corporation entitled to vote
for the election of directors at such meeting who complies with the procedures
set forth in this Section 2.13. All nominations by Stockholders shall be made
pursuant to timely notice in proper written form submitted to the Secretary of
the Corporation. To be timely, a Stockholders' notice shall be delivered to or
mailed
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and received at the principal executive offices of the Corporation not less than
60 days nor more than 90 days prior to the anniversary of the annual meeting
held for the immediately preceding year (PROVIDED, HOWEVER, that if no annual
meeting was held in the previous year or the date of the annual meeting of
Stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, the notice must
be received by the Corporation at least 45 days prior to the date the
Corporation intends to distribute its proxy statement with respect to such
meeting) or, in the case of a special meeting at which directors are to be
elected and for which less than 40 days' notice or prior public disclosure of
the date of the meeting is given or made to Stockholders, notice by the
Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form, such Stockholder's notice to the Secretary shall set forth in
writing (a) as to each person whom such Stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected; and (b) as to such
Stockholder (i) the name and address, as they appear on the Corporation's books,
and principal occupation of such Stockholder, (ii) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
Stockholder and the dates upon which such Stockholder acquired such shares and
documentary support for any claims of beneficial ownership, and (iii) a
description of all agreements, arrangements or understandings between such
Stockholder and each such person
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that such Stockholder proposes to nominate as a director and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such Stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a Stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director unless
nominated in accordance with the procedures set forth in these Bylaws of the
Corporation. The chairman of the Stockholder's meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws of the Corporation,
and if he shall so determine, he shall announce such determination to the
meeting and the defective nomination shall be disregarded.
SECTION 2.14 STOCKHOLDER PROPOSALS. At any special meeting of the
Corporation's Stockholders, only such business shall be conducted as shall have
been brought before the meeting by or at the direction of the Board of
Directors. At any annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors or (b) by any Stockholder who complies with
the procedures set forth in this Section 2.14; PROVIDED, HOWEVER, that nothing
in this Section 2.14 shall be deemed to preclude discussion by any Stockholder
of any business properly brought before any annual meeting of Stockholders in
accordance with such procedures. For business properly to be brought before an
annual meeting by a Stockholder, the Stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation. To be
timely, a Stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than
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60 days nor more than 90 days prior to the anniversary of the annual meeting
held for the immediately preceding year (PROVIDED, HOWEVER, that if no annual
meeting was held in the previous year or the date of the annual meeting of
Stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, the notice must
be received by the Corporation at least 45 days prior to the date the
Corporation intends to distribute its proxy statement with respect to such
meeting). To be in proper written form, such Stockholder's notice to the
Secretary shall set forth in writing as to each matter such Stockholder proposes
to bring before the annual meeting (a) a brief description of the business
desired to be brought before the annual meeting, including the exact text of any
proposal to be presented for adoption and any supporting statement (which shall
not exceed 500 words in the aggregate), and such Stockholder's meeting the
reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, and principal occupation of
such Stockholder, (c) the class and number of shares of the Corporation's stock
which are beneficially owned by such Stockholder and the dates upon which such
Stockholder acquired such shares and documentary support for any claims of
beneficial ownership, and (d) any material interest of such Stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.14 and the foregoing rights of a Stockholder to
propose business for consideration at an annual meeting of Stockholders shall be
subject to such conditions, restrictions and limitations as may be imposed by
the Certificate of Incorporation. The chairman of an annual stockholder's
meeting shall, if the facts warrant, determine and declare to the meeting that
business is not properly brought before the meeting in accordance with the
provisions of this Section 2.14, and, if he should
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so determine, he shall so announce such determination to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Notwithstanding any other provision of these Bylaws, the Corporation shall be
under no obligation to include any Stockholder proposal in its proxy statement
material or otherwise present any such proposal to Stockholders at a meeting of
Stockholders if the Board of Directors reasonably believes that the proponents
thereof have not complied with Sections 13 and 14 of the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder, and
the Corporation shall not be required to include in its proxy statement material
to Stockholders any Stockholder proposal not required to be included in its
proxy statement to Stockholders in accordance with such act, rules or
regulations.
ARTICLE III
DIRECTORS
SECTION 3.1 MANAGEMENT. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all powers of the Corporation and do all lawful acts and
things as are not by law, by the Corporation's certificate of incorporation, as
amended and in effect from time to time (the "Certificate of Incorporation") or
by these Bylaws directed or required to be exercised or done by the
Stockholders.
SECTION 3.2 NUMBER AND TERM. The actual number of directors constituting
the entire Board of Directors shall be fixed from time to time by resolution of
the Board of Directors adopted by the affirmative vote of a majority of the
members of the entire Board of Directors, but shall consist of not less than one
nor more than 15 members, all of whom shall be elected each year by the
Stockholders except as provided in Section 3.4. The Board of Directors shall
have sole authority to determine the number of directors, within the limits set
forth above, and may increase or decrease
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the exact number of directors from time to time by resolution duly adopted by
the affirmative vote of a majority of the entire Board of Directors. Directors
need not be Stockholders. No decrease in the number of directors shall have the
effect of shortening the term of office of any incumbent director.
SECTION 3.3 QUORUM AND MANNER OF ACTION. At all meetings of the Board of
Directors a majority of the total number of directors holding office shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
law, by the Certificate of Incorporation or by these Bylaws. When the Board of
Directors consists of one director, the one director shall constitute a majority
and a quorum. If at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time until a quorum is obtained, and no further notice thereof need be
given other than by announcement at such adjourned meeting. Attendance by a
director at a meeting shall constitute a waiver of notice of such meeting except
where a director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. A director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to such action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as Secretary of the meeting before
the adjournment thereof or shall forward any dissent by certified or registered
mail to the Secretary immediately after the adjournment of the meeting. Such
right to dissent shall not apply to any director who voted in favor of such
action.
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SECTION 3.4 VACANCIES. Except as otherwise provided by law and the
Certificate of Incorporation, in the case of any increase in the authorized
number of directors or of any vacancy in the Board of Directors, however
created, the additional director or directors may be elected, or, as the case
may be, the vacancy or vacancies shall be filled by majority vote of the
directors remaining on the whole Board of Directors although less than a quorum,
or by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled by
a majority of the directors who will remain on the whole Board of Directors,
although less than a quorum, or by a sole remaining director. Any director
elected or chosen as provided herein shall serve until the sooner of (i) the
unexpired term of the directorship to which he is appointed; or (ii) until his
successor is elected and qualified; or (iii) until his earlier resignation or
removal. If, as a result of a disaster or emergency (as determined in good faith
by the then remaining directors), it becomes impossible to ascertain whether or
not vacancies exist on the Board of Directors and a person is or persons are
elected by the directors, who in good faith believe themselves to be a majority
of the remaining directors, to fill a vacancy or vacancies that such remaining
directors in good faith believe exists, then the acts of such person or persons
who are so elected as directors shall be valid and binding upon the Corporation
and the Stockholders, although it may subsequently develop that at the time of
the election (i) there was in fact no vacancy or vacancies existing on the Board
of Directors or (ii) the directors who so elected such person or persons did not
in fact constitute a majority of the remaining directors.
SECTION 3.5 RESIGNATIONS. A director may resign at any time upon written
notice of resignation to the Corporation, delivered to the Secretary. Any
resignation shall be effective
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immediately unless a certain effective date is specified therein, in which event
it will be effective upon such date and acceptance of any resignation shall not
be necessary to make it effective.
SECTION 3.6 REMOVALS. Any director or the entire Board of Directors may be
removed before the expiration of such director's term of office only for cause,
and another person or persons may be elected to serve for the remainder of his
or their term, and only upon the affirmative vote of the holders of a majority
of the shares of the Corporation entitled to vote in the election of directors.
Stockholders may not remove any director without cause. In case any vacancy so
created shall not be filled by the Stockholders at such meeting, such vacancy
may be filled by the directors as provided in Section 3.4.
SECTION 3.7 ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held, if a quorum be present, immediately following each annual meeting
of the Stockholders at the place such meeting of Stockholders took place, for
the purpose of organization and transaction of any other business that might be
transacted at a regular meeting thereof, and no notice of such meeting shall be
necessary. If a quorum is not present, such annual meeting may be held at any
other time or place that may be specified in a notice given in the manner
provided in Section 3.9 for special meetings of the Board of Directors or in a
waiver of notice thereof.
SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such places and times as shall be determined from
time to time by resolution of the Board of Directors. Except as otherwise
provided by law, any business may be transacted at any regular meeting of the
Board of Directors.
SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chief Executive Officer or by the Secretary on the written
request of one-third of the members
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of the whole Board of Directors stating the purpose or purposes of such meeting.
Notices of special meetings, if mailed, shall be mailed to each director not
later than two days before the day the meeting is to be held or if otherwise
given in the manner permitted by these Bylaws, not later than the day before
such meeting. Neither the business to be transacted at, nor the purpose of, any
special meeting need be specified in any notice or written waiver of notice
unless so required by the Certificate of Incorporation or by the Bylaws and,
unless limited by law, the Certificate of Incorporation or by these Bylaws, any
and all business may be transacted at a special meeting.
SECTION 3.10 ORGANIZATION OF MEETINGS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as such Board
of Directors may from time to time determine, and all matters shall be
determined by the vote of a majority of the directors present at any meeting at
which there is a quorum, except as otherwise provided by these Bylaws or
required by law.
SECTION 3.11 PLACE OF MEETINGS. The Board of Directors may hold their
meetings and have one or more offices, and keep the books of the Corporation,
inside or outside the State of Delaware, at any office or offices of the
Corporation, or at any other place as they may from time to time by resolution
determine.
SECTION 3.12 COMPENSATION OF DIRECTORS. The Board of Directors shall have
the authority to fix, and from time to time to change, the compensation of
directors. Directors shall not receive any stated salary for their services as
directors, but by resolution of the Board of Directors a fixed honorarium or
fees and expenses, if any, of attendance may be paid by the Corporation for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members
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of special or standing committees may be allowed like compensation for attending
such committee meetings.
SECTION 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless otherwise
restricted by law, the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or of such committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board of Directors or the committee.
SECTION 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors or of any committee thereof may participate in a meeting of
such Board of Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting in such manner shall
constitute presence in person at such meeting.
SECTION 3.15 ELECTION OF DIRECTORS BY CLASS VOTE OF HOLDERS OF PREFERRED
STOCK. Notwithstanding the foregoing provisions of this Article III, if the
resolutions of the Board of Directors creating any class or series of preferred
stock of the Corporation entitle the holders of such preferred stock, voting
separately by class or series, to elect additional directors under specified
circumstances, then all provisions of such resolutions relating to the
nomination, election, term of office, removal, filling of vacancies and other
features of such directorships shall, as to such directorships, govern and
control over any conflicting provisions of this Article III, and such
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directors so elected need not be divided into classes pursuant to this Article
III unless expressly provided by the provisions of such resolutions.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of Directors,
designate one or more directors to constitute an Executive Committee and such
other committees as the Board of Directors may determine, each of which
committees to the extent provided in said resolution or resolutions or in these
Bylaws, shall have and may exercise all the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except in those
cases where the authority of the Board of Directors is specifically denied to
the Executive Committee or such other committee or committees by law, the
Certificate of Incorporation or these Bylaws, and may authorize the seal of the
Corporation to be affixed to all papers that may require it. The designation of
an Executive Committee or other committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed upon it or him by law. Each member of a
committee of the Board of Directors shall serve as such until the earliest of
(i) his death, (ii) the expiration of his term as a director, (iii) his
resignation as a member of such committee or as a director and (iv) his removal
as a member of such committee or as a director.
SECTION 4.2 MINUTES. Each committee designated by the Board of Directors
shall keep regular minutes of its proceedings and shall provide a report of its
proceedings to the Board of Directors when required or requested by the Board of
Directors.
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SECTION 4.3 VACANCIES. The Board of Directors may designate one or more of
its members as alternate members of any committee who may replace any absent or
disqualified member at any meeting of such committee. If no alternate members
have been appointed, the committee member or members thereof present at any
meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. The Board of Directors shall have the power at any time to fill
vacancies in, to change the membership of, and to dissolve, any committee.
SECTION 4.4 TELEPHONE MEETINGS. Members of any committee designated by the
Board of Directors may participate in or hold a meeting by use of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this Section 4.4 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
SECTION 4.5 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of any committee designated by the Board of Directors may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the committee and filed with the minutes
of the committee proceedings. Such consent shall have the same force and effect
as a unanimous vote at a meeting.
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ARTICLE V
OFFICERS
SECTION 5.1 NUMBER AND TITLE. The elected officers of the Corporation
shall be chosen by the Board of Directors and shall be a Chief Executive
Officer, the Chief Operating Officer, a Vice President, a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board, who
must be a member of the Board of Directors, and additional officers, including
Vice Presidents (including one or more Senior Vice Presidents), Assistant
Secretaries and/or Assistant Treasurers. One person may hold any two or more of
these offices.
SECTION 5.2 TERM OF OFFICE; VACANCIES. So far as is practicable, all
elected officers shall be elected by the Board of Directors at the annual
meeting of the Board of Directors in each year, and except as otherwise provided
in this Article V, shall hold office until the next such meeting of the Board of
Directors in the subsequent year and until their respective successors are
elected and qualified or until their earlier resignation or removal. All
appointed officers shall hold office at the pleasure of the Board of Directors.
If any vacancy shall occur in any office, the Board of Directors may elect or
appoint a successor to fill such vacancy for the remainder of the term.
SECTION 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer may be
removed at any time, with or without cause, by affirmative vote of a majority of
the whole Board of Directors, at any regular meeting or at any special meeting
called for such purpose.
SECTION 5.4 RESIGNATIONS. Any officer may resign at any time upon written
notice of resignation to the Chief Executive Officer, Secretary or Board of
Directors of the Corporation. Any resignation shall be effective immediately
unless a date certain is specified for it to take effect, in which event it
shall be effective upon such date, and acceptance of any resignation shall not
be
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necessary to make it effective, irrespective of whether the resignation is
tendered subject to such acceptance. Any such resignation is without prejudice
to the rights, if any, of the Corporation under any contract to which the
officer is a party.
SECTION 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall be elected, shall preside at all meetings of the Stockholders and Board of
Directors. In addition, the Chairman of the Board shall perform whatever duties
and shall exercise all powers that are given to him by the Board of Directors.
SECTION 5.6 CHIEF EXECUTIVE OFFICER. (a) The Chief Executive Officer shall
be the chief executive officer of the Corporation and, subject to the
supervision, direction and control of the Board of Directors and the Chairman of
the Board (if any), shall have general supervision, direction and control of the
business and officers of the Corporation with all such powers as may be
reasonably incident to such responsibilities. The Chief Executive Officer shall
implement the general directives, plans and policies formulated by the Board of
Directors and shall further have such duties, responsibilities and authorities
as may be assigned to him by the Board of Directors. The Chief Executive Officer
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation.
(b) During the time of any vacancy in the office of Chairman of the
Board or in the event of the absence or disability of the Chairman of the Board,
the Chief Executive Officer shall have the duties and powers of the Chairman of
the Board unless otherwise determined by the Board of Directors. In the absence
of the Chairman of the Board, if one be elected, the Chief Executive Officer
shall preside at meetings of the Stockholders and Board of Directors and shall
be EX OFFICIO a member of all standing committees. During the time of any
vacancy in the office of Chief
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Operating Officer or in the event of the absence or disability of the Chief
Operating Officer, the Chief Executive Officer shall have the duties and powers
of the Chief Operating Officer unless otherwise determined by the Board of
Directors. In no event shall any third party having any dealings with the
Corporation be bound to inquire as to any facts required by the terms of this
Section 5.6 for the exercise by the Chief Executive Officer of the powers of the
Chairman of the Board or the Chief Operating Officer.
SECTION 5.7 CHIEF OPERATING OFFICER. (a) The Chief Operating Officer shall
be the chief operating officer of the Corporation and, subject to the
supervision, direction and control of the Chief Executive Officer and the Board
of Directors, shall manage the day-to-day operations of the Corporation. He
shall have the general powers and duties of management usually vested in the
chief operating officer of a corporation and such other powers and duties as may
be assigned to him by the Board of Directors, the Chief Executive Officer or
these Bylaws. The Chief Operating Officer may sign, with any other proper
officer, certificates for shares of the Corporation and any deeds, bonds,
mortgages, contracts and other documents which the Board of Directors has
authorized to be executed, except where required by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board or Directors or these Bylaws, to some other
officer or agent of the Corporation. In the absence of the Chief Operating
Officer, his duties shall be performed and his authority may be exercised by the
Chief Executive Officer or a Vice President of the Corporation as may have been
designated by the Chief Operating Officer with the right reserved to the Board
of Directors to designate or supersede any designation so made.
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(b) During the time of any vacancy in the offices of the Chairman of
the Board and Chief Executive Officer or in the event of the absence or
disability of the Chairman of the Board and the Chief Executive Officer, the
Chief Operating Officer shall have the duties and powers of the Chief Executive
Officer unless otherwise determined by the Board of Directors. In no event shall
any third party having any dealings with the Corporation be bound to inquire as
to any facts required by the terms of this Section 5.7 for the exercise by the
Chief Operating Officer of the powers of the Chief Executive Officer.
SECTION 5.8 VICE PRESIDENTS. In the absence or disability of the Chief
Operating Officer, the Vice Presidents, if any, in order of their rank as fixed
by the Board of Directors, or if not ranked, the Vice President designated by
the President, shall perform all the duties of the Chief Operating Officer as
chief operating officer of the Corporation, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the Chief Operating
Officer as chief operating officer of the Corporation. In no event shall any
third party having dealings with the Corporation be bound to inquire as to any
facts required by the terms of this Section 5.8 for the exercise by any Vice
President of the powers of the Chief Operating Officer as chief operating
officer of the Corporation. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be assigned to them by these
Bylaws and as may from time to time be assigned to them by the Board of
Directors, the Chief Executive Officer or the Chief Operating Officer, and may
sign, with any other proper officer, certificates for shares of the Corporation.
SECTION 5.9 SECRETARY. The Secretary shall keep or cause to be kept, at
the principal office of the Corporation or such other place as the Board of
Directors may order, a book of minutes of all meetings and actions of the Board
of Directors, committees of the Board of Directors and
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Stockholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at meetings of the Board of Directors and committees thereof, the number
of shares present or represented at Stockholders' meetings and the proceedings
thereof. The Secretary, if available, shall attend all meetings of the Board of
Directors and all meetings of the Stockholders and record the proceedings of the
meetings in a book to be kept for that purpose and shall perform like duties for
any committee of the Board of Directors as the Board of Directors or such
committee shall designate him to serve. The Secretary shall give, or cause to be
given, notice of all meetings of the Stockholders and meetings of the Board of
Directors and committees thereof and shall perform such other duties incident to
the office of secretary or as may be prescribed by the Board of Directors or the
Chief Operating Officer, under whose supervision he shall be. The Secretary
shall have custody of the corporate seal of the Corporation and he, or any
Assistant Secretary, or any other person whom the Board of Directors may
designate, shall have authority to affix the same to any instrument requiring
it, and when so affixed it may be attested by his signature or by the signature
of any Assistant Secretary or by the signature of such other person so affixing
such seal.
SECTION 5.10 ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors, the Chief
Executive Officer, the Chief Operating Officer or the Secretary. The Assistant
Secretary or such other person as may be designated by the Chief Executive
Officer shall exercise the powers of the Secretary during that officer's absence
or inability to act.
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SECTION 5.11 TREASURER. The Treasurer shall have the custody of and be
responsible for the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in the books belonging to the Corporation
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Chief Operating Officer and the Board of Directors, at its
regular meetings, or when the Board of Directors so requires, an account of all
his transactions as Treasurer and of the financial condition of the Corporation
and he shall perform all other duties incident to the position of Treasurer, or
as may be prescribed by the Board of Directors or the Chief Executive Officer.
If required by the Board of Directors, he shall give the Corporation a bond in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
SECTION 5.12 ASSISTANT TREASURERS. Each Assistant Treasurer shall have the
usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors, the Chief
Executive officer, the Chief Operating Officer or the Treasurer. The Assistant
Treasurer or such other person designated by the Chief Executive Officer shall
exercise the power of the Treasurer during that officer's absence or inability
to act.
SECTION 5.13 SUBORDINATE OFFICERS. The Board of Directors may (a) appoint
such other subordinate officers and agents as it shall deem necessary who shall
hold their offices for such terms,
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have such authority and perform such duties as the Board of Directors may from
time to time determine, or (b) delegate to any committee or officer the power to
appoint any such subordinate officers or agents.
SECTION 5.14 SALARIES AND COMPENSATION. The salary or other compensation
of officers shall be fixed from time to time by the Board of Directors. The
Board of Directors may delegate to any committee or officer the power to fix
from time to time the salary or other compensation of officers and agents.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) The Corporation
(i) shall indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that such person is
or was, at any time prior to or during which this Article VI is in effect, a
director or officer of the Corporation, or is or was, at any time prior to or
during which this Article VI is in effect, serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan and (ii) upon a
determination by the Board of Directors that indemnification is appropriate, the
Corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that such
person is or was, at any time prior to or during which this Article VI is in
effect, an employee
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or agent of the Corporation or at the request of the Corporation was serving as
an employee or agent of any other corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan, in the case of (i) and (ii)
against reasonable expenses (including attorneys' fees), judgments, fines,
penalties, amounts paid in settlement and other liabilities actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe that his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
such person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The Corporation (i) shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that such person is or was, at any time prior to
or during which this Article VI is in effect, a director or officer of the
Corporation, or is or was, at any time prior to or during which this Article VI
is in effect, serving at the request of the Corporation as a director or officer
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise and (ii) upon a determination by the Board of Directors that
indemnification is appropriate, the Corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person
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is or was, at any time prior to or during which this Article VI is in effect, an
employee or agent of the Corporation or at the request of the Corporation was
serving as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, in the case of (i)
and (ii) against expenses (including attorneys' fees), actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation;
provided, that no indemnification shall be made under this sub-section (b) in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery, or other court of appropriate jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity of such expenses which the Delaware Court of Chancery, or
other court of appropriate jurisdiction, shall deem proper.
(c) Any indemnification under sub-sections (a) or (b) (unless ordered by
the Delaware Court of Chancery or other court of appropriate jurisdiction) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of such person is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b). Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors not parties to such action,
suit or proceeding; or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel, in written opinion, selected by the Board of Directors; or (3) by the
Stockholders. In the event a determination is made under this sub-section (c)
that the director,
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officer, employee or agent has met the applicable standard of
conduct as to some matters but not as to others, amounts to be indemnified may
be reasonably prorated.
(d) Expenses incurred by a person who is or was a director or officer of
the Corporation in appearing at, participating in or defending any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized by this Article VI. In
addition, the Corporation shall pay or reimburse expenses incurred by any person
who is or was a director or officer of the Corporation in connection with such
person's appearance as a witness or other participant in a proceeding in which
such person or the Corporation is not a named party to such proceeding, provided
that such appearance or participation is on behalf of the Corporation or by
reason of his capacity as a director or officer, or former director or officer
of the Corporation.
(e) If in a suit or proceeding for indemnification required under this
Article VI of a director or officer, or former director or officer, of the
Corporation or any of its affiliates, a court of competent jurisdiction
determines that such person is entitled to indemnification under this Article
VI, the court shall award, and the Corporation shall pay, to such person the
expenses incurred in securing such judicial determination.
(f) It is the intention of the Corporation to indemnify the persons
referred to in this Article VI to the fullest extent permitted by law and with
respect to any action, suit or proceeding arising from events which occur at any
time prior to or during which this Article VI is in effect. The
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indemnification and advancement of expenses provided by this Article VI shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be or become entitled under any
law, the Certificate of Incorporation, these Bylaws, agreement, the vote of
Stockholders or disinterested directors or otherwise, or under any policy or
policies of insurance purchased and maintained by the Corporation on behalf of
any such person, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
(g) The indemnification provided by this Article VI shall be subject to
all valid and applicable laws, and, in the event this Article VI or any of the
provisions hereof or the indemnification contemplated hereby are found to be
inconsistent with or contrary to any such valid laws, the latter shall be deemed
to control and this Article VI shall be regarded as modified accordingly, and,
as so modified, to continue in full force and effect.
ARTICLE VII
CAPITAL STOCK
SECTION 7.1 CERTIFICATES OF STOCK. Certificates of stock shall be issued
to each Stockholder certifying the number of shares owned by him in the
Corporation and shall be in a form not inconsistent with the Certificate of
Incorporation and as approved by the Board of Directors. The certificates shall
be signed by the Chairman of the Board, the Chief Executive Officer, the Chief
Operating Officer or a Vice President and by the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer and may be sealed with the
seal of the Corporation or a facsimile thereof. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent
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or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
If the Corporation shall be authorized to issue more than one (1) class of
stock or more than one (1) series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided by statute, in lieu of the foregoing requirements, there may
be set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each Stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. The Board of
Directors shall have the power and authority to provide that certificates
representing shares of stock of the Corporation bear such legends and statements
as the Board of Directors deems appropriate in connection with the requirements
of federal or state securities laws or other applicable laws.
SECTION 7.2 LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the owner of such certificate, or his legal
representative. When authorizing the issuance of a new certificate, the Board of
Directors
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may in its discretion, as a condition precedent to the issuance
thereof, require the owner, or his legal representative, to give a bond in such
form and substance with such surety as it may direct, to indemnify the
Corporation against any claim that may be made on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
SECTION 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD FOR
CERTAIN PURPOSES. (a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than 60 days prior to the date of payment of such dividend or
other distribution or allotment of such rights or the date when any such rights
in respect of any change, conversion or exchange of stock may be exercised or
the date of such other action. In such a case, only Stockholders of record on
the date so fixed shall be entitled to receive any such dividend or other
distribution or allotment of rights or to exercise such rights or for any other
purpose, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
(b) If no record date is fixed, the record date for determining
Stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 7.4 DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, if any, and except as otherwise provided by law, the directors
may declare dividends upon the capital stock of the Corporation as and when they
deem it to be expedient. Such dividends may be paid in cash, in property or in
shares of the Corporation's capital stock. Before declaring any dividend the
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directors may set apart out of the funds of the Corporation available for
dividend such sum or sums as the directors from time to time in their discretion
think proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends, or for such other purposes as the directors shall
determine to be conducive to the interests of the Corporation and the directors
may modify or abolish any such reserve in the manner in which it was created.
SECTION 7.5 REGISTERED STOCKHOLDERS. Except as expressly provided by law,
the Certificate of Incorporation and these Bylaws, the Corporation shall be
entitled to treat registered Stockholders as the only holders and owners in fact
of the shares standing in their respective names and the Corporation shall not
be bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, regardless of whether it shall have express or
other notice thereof.
SECTION 7.6 TRANSFER OF STOCK. Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the
registered owners thereof, or by their legal representatives or their duly
authorized attorneys. Upon any such transfers the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock transfer books and ledgers, by whom they shall be canceled and new
certificates shall thereupon be issued.
SECTION 7.7 STOCK OPTIONS, WARRANTS, ETC. Unless otherwise expressly
prohibited in the resolutions of the Board of Directors creating any class or
series of preferred stock of the Corporation, the Board of Directors shall have
the power and authority to create and issue (whether or not in connection with
the issue and sale of any stock or other securities of the Corporation),
warrants, rights or options entitling the holders thereof to purchase from the
Corporation any shares of capital stock of the Corporation of any class or
series or any other securities of the Corporation for such consideration and to
such persons, firms or Corporations as the Board of Directors, in its
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sole discretion, may determine setting aside from the authorized but unissued
stock of the Corporation the requisite number of shares for issuance upon the
exercise of such warrants, rights or options. Such warrants, rights and options
shall be evidenced by one or more instruments approved by the Board of
Directors. The Board of Directors shall be empowered to set the exercise price,
duration, time for exercise and other terms of such warrants, rights and
operations; PROVIDED, HOWEVER, that the consideration to be received for any
shares of capital stock subject thereto shall not be less than the par value
thereof.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 CORPORATE SEAL. If one be adopted, the corporate seal shall
have inscribed thereon the name of the Corporation and shall be in such form as
may be approved by the Board of Directors. Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner reproduced.
SECTION 8.2 FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 8.3 CHECKS, DRAFTS, NOTES. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner as shall from time to time be
determined by resolution (whether general or special) of the Board of Directors
or may be prescribed by any officer or officers, or any officer and agent
jointly, thereunto duly authorized by the Board of Directors.
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SECTION 8.4 CORPORATE CONTRACTS AND INSTRUMENTS. Subject always to the
specific directions of the Board of Directors, the Chairman of the Board (if
any), the Chief Executive Officer, the Chief Operating Officer, any Vice
President, the Secretary or the Treasurer may enter into contracts and execute
instruments in the name and on behalf of the Corporation. The Board of Directors
and, subject to the specific directions of the Board of Directors, the Chairman
of the Board (if any), the Chief Executive Officer or the Chief Operating
Officer may authorize one or more officers, employees or agents of the
Corporation to enter into any contact or execute any instrument in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances.
SECTION 8.5 NOTICE AND WAIVER OF NOTICE. Whenever notice is required to be
given to any director or Stockholder under the provisions of applicable law, the
Certificate of Incorporation or of these Bylaws it shall not be construed to
only mean personal notice, rather, such notice may also be given in writing, by
mail, addressed to such director or Stockholder at his address as it appears on
the records of the Corporation, with postage thereon prepaid (unless prior to
the mailing of such notice he shall have filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address in which case, such notice shall be mailed to the address
designated in the request), and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram, cable or other form of recorded
communication, by personal delivery or by telephone. Whenever notice is required
to be given under any provision of law, the Certificate of Incorporation or
these Bylaws, a waiver thereof in writing, by telegraph, cable or other form of
recorded communication, signed by the person or persons entitled to said notice,
whether before or after the time stated therein,
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shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting, to
the transaction of any business on the ground that the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Stockholders, directors, or members of
a committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these Bylaws.
SECTION 8.6 EXAMINATION OF BOOKS AND RECORDS. The Board of Directors shall
determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the Corporation (except
such as may by statute be specifically opened to inspection) or any of them
shall be open to inspection by the Stockholders, and the Stockholders' rights in
this respect are and shall be restricted and limited accordingly.
SECTION 8.7 VOTING UPON SHARES HELD BY THE CORPORATION. Unless otherwise
provided by law or by the Board of Directors, the Chairman of the Board of
Directors, if one shall be elected, or the Chief Executive Officer, if a
Chairman of the Board of Directors shall not be elected, acting on behalf of the
Corporation, shall have full power and authority to attend and to act and to
vote at any meeting of Stockholders of any corporation in which the Corporation
may hold stock and, at any such meeting, shall possess and may exercise any and
all of the rights and powers incident to the ownership of such stock which, as
the owner thereof, the Corporation might have possessed and
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exercised, if present. The Board of Directors by resolution from time to time
may confer like powers upon any person or persons.
ARTICLE IX
AMENDMENTS
SECTION 9.1 AMENDMENT. Except as otherwise expressly provided in the
Certificate of Incorporation, the directors, by the affirmative vote of a
majority of the entire Board of Directors and without the assent or vote of the
Stockholders, may at any meeting, provided the substance of the proposed
amendment shall have been stated in the notice of the meeting, make, repeal,
alter, amend or rescind any of these Bylaws. The Stockholders shall not make,
repeal, alter, amend or rescind any of the provisions of these Bylaws except by
the holders of not less than 80% of the total voting power of all shares of
stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Article IX as one class.
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EXHIBIT 10.1
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"Agreement") is made as of the 20th day of December 1996, by and among PalEx,
Inc., a Delaware corporation ("PalEx"), Main Street Capital Partners, L.P., a
Texas limited partnership ("Main Street"), Ridge Resource Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of PalEx
("Subsidiary"), Ridge Pallets, Inc., a Florida corporation (the "Company"), and
the individual stockholders of the Company identified on Schedule A to this
Agreement (the "Stockholders").
WITNESSETH:
WHEREAS, the respective stockholders and Boards of Directors of Subsidiary
and the Company (collectively referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that Subsidiary merge (the "Merger") with and into
the Company;
WHEREAS, PalEx is entering into other agreements substantially similar to
this Agreement with each of Fraser Industries, Inc., a Texas corporation
("Fraser"), and Interstate Pallet, Co., a Virginia corporation ("Interstate"
and, together with the Company and Fraser, collectively referred to as the
"Founding Companies"), which agreements provide for the merger of subsidiaries
of PalEx with and into Fraser and Interstate simultaneously with the Merger; and
WHEREAS, the Boards of Directors of PalEx, Subsidiary and the Company have
approved and adopted this Agreement and intend this transaction to qualify as a
tax-free transaction under the provisions of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2), Subsidiary
shall be merged with and into the Company in accordance with the Delaware
General Corporation Law ("DGCL") and the Florida Business Corporation Act and
the separate existence of Subsidiary shall cease. The Company shall be the
surviving party in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation." The Merger will be effected in a single transaction.
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SECTION 1.2. EFFECTIVE TIME OF MERGER. The Merger shall become effective
(the "Effective Time") at such time as shall be stated in certificates of Merger
(the "Certificates of Merger") to be filed with the Secretary of State of the
States of Delaware and Florida. The Constituent Corporations will cause the
Certificates of Merger to be executed and delivered to the Secretary of State of
the State of Delaware and the Secretary of State of the State of Florida on or
before the Closing Date (as defined in Article III).
SECTION 1.3. CERTIFICATE OF INCORPORATION, BY-LAWS, BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION; BOARD OF DIRECTORS AND OFFICERS OF PALEX. At
the Effective Time of the Merger:
(a) An Amended and Restated Articles of Incorporation with the same
provisions as the Company's Articles of Incorporation then in effect shall be
filed and shall become the Articles of Incorporation of the Surviving
Corporation, and subsequent to the Effective Time, such Articles of
Incorporation shall be the Articles of Incorporation of the Surviving
Corporation until amended as provided by law;
(b) The By-laws of the Company then in effect shall become the By-laws of
the Surviving Corporation, and subsequent to the Effective Time, such By-laws
shall be the By-laws of the Surviving Corporation until they shall thereafter be
duly amended;
(c) The Boards of Directors of PalEx and the Surviving Corporation shall
consist of the persons identified on SCHEDULE 1.3(C) hereto. The Board of
Directors of PalEx and the Surviving Corporation shall hold office subject to
the laws of the State of Delaware and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(d) The officers of PalEx and the Surviving Corporation shall be the
persons identified on SCHEDULE 1.3(D) hereto, each of such officers to serve
until such officer's successor is duly elected and qualified, subject to the
provisions of the Certificate of Incorporation and By-laws of PalEx and the
Surviving Corporation and the terms of any employment agreement executed by any
such officer.
SECTION 1.4. EFFECT OF MERGER. The identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of the Company shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of Subsidiary shall be merged with and into the Company, as
the Surviving Corporation. At the Effective Time of the Merger, the separate
existence of Subsidiary shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions for shares, all taxes, including those due and owing and
those accrued, and all other choses in action, and all and every other interest
of or belonging to or due to the Company and Subsidiary shall be taken and
deemed to be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
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the property of the Surviving Corporation as they were of the Company and
Subsidiary; and the title to any real estate, or interest therein, whether by
deed or otherwise, under the laws of the state of incorporation vested in the
Company or Subsidiary, shall not revert or be in any way impaired by reason of
the Merger. Except as otherwise provided in this Agreement, following the Merger
the Surviving Corporation shall be responsible and liable for all the
liabilities and obligations of Subsidiary and PalEx and any claim existing, or
action or proceeding pending, by or against the Company or Subsidiary may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Subsidiary shall be impaired by the Merger,
and all debts, liabilities and duties of the Company and Subsidiary shall attach
to the Surviving Corporation and may be enforced against such Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
ARTICLE II
CONVERSION OF STOCK
SECTION 2.1. MANNER OF CONVERSION. At the Effective Time, by virtue of the
Merger and without any action on the part of PalEx, Subsidiary, the Company or
any of the Stockholders:
(a) The shares of common stock, par value $1.00 per share, of the Company
(the "Company Stock") that are issued and outstanding immediately prior to the
Effective Time, automatically shall be deemed to represent (i) the right to
receive that number of shares of common stock, par value $.01 per share, of
PalEx ("PalEx Common Stock") set forth in SCHEDULE 2.1 and (ii) the right to
receive the amount of cash set forth in SCHEDULE 2.1. As of the Effective Time,
all shares of Company Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Company Stock shall cease to
have any rights with respect thereto, except the right to receive that number of
shares of PalEx Common Stock and cash to be issued in consideration therefore
upon surrender of such certificate in accordance with Section 2.2.
(b) All shares of Company Stock that are held by the Company as treasury
stock, if any, shall be canceled and retired and no shares of PalEx Common Stock
or other consideration shall be delivered or paid in exchange therefor.
(c) Each share of capital stock of Subsidiary issued and outstanding and
owned by PalEx shall, by virtue of the Merger and without any action on the part
of PalEx, be converted into one share of common stock, $.01 par value, of the
Company, as the Surviving Corporation.
SECTION 2.2. EXCHANGE OF CERTIFICATES FOR CONSIDERATION. At the Closing
(as defined in Article III), the Stockholders shall deliver to PalEx the
original certificates representing the Company Stock, duly endorsed in blank by
the Stockholders or accompanied by blank stock powers. The Stockholders agree
promptly to cure any deficiencies with respect to the endorsement of the
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certificates or other documents of conveyance with respect to such Company
Stock. Upon surrender of such certificates, the Stockholders shall be entitled
to receive certificates representing the number of shares of PalEx Stock and the
amount of cash set forth in SCHEDULE 2.1, which shall be delivered on the
Consummation Date (as defined in Article III).
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
On the date of execution of the underwriting agreement (the "Underwriting
Agreement") relating to the initial public offering of PalEx Stock (the "IPO"),
the parties shall take all actions necessary (i) to effect the Merger
(including, if permitted by applicable state law, the filing with the
appropriate state authorities of the Certificates of Merger which shall become
effective on the Consummation Date (as defined below)) and (ii) to effect the
conversion and delivery of shares referred to in Section 2.2 (hereinafter
referred to as the "Closing"); PROVIDED, HOWEVER, that such actions shall not
include the actual completion of the Merger or the conversion and delivery of
the shares referred to in Article II, which actions shall be taken on the
Consummation Date. The Closing shall take place at a location mutually agreeable
to the Company and PalEx. The date on which the Closing shall occur shall be
referred to as the "Closing Date." On the Consummation Date, the Certificates of
Merger shall be filed with the appropriate state authorities, or if already
filed shall become effective, and all transactions contemplated by this
Agreement shall occur and be deemed to be completed. The Consummation Date shall
be the date on which the closing of the IPO occurs. During the period from the
Closing Date to the Consummation Date, this Agreement may only be terminated by
the parties if the Underwriting Agreement is terminated pursuant to the terms of
such agreement or as otherwise expressly provided herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and Stockholders represent and warrant to PalEx as follows:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing will
not, when taken together with all other such failures, have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the Company (a "Company Material
Adverse Effect"). True, accurate and complete copies of the Company's Articles
of Incorporation and By-laws, in each
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case as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to PalEx.
SECTION 4.2. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 5,000,000
shares of Company Stock and no shares of preferred stock. As of December 20,
1996, 549,500 shares of Company Stock and no shares of preferred stock were
issued and outstanding. All of such issued and outstanding shares are validly
issued and are fully paid, nonassessable and free of preemptive rights. The
Stockholders own beneficially and of record all of the shares of the Company
Stock, which constitutes all of the outstanding shares of capital stock of the
Company, and, except as described in SCHEDULE 4.2, such Company Stock is owned
free and clear of all liens, claims or encumbrances of any nature. As a result
of the Merger, the Stockholders will convey and transfer to PalEx good and
marketable title to the Company Stock owned by them.
(b) Except as set forth on SCHEDULE 4.2 attached hereto, as of the date
hereof there were no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or
obligating the Company to grant, extend or enter into any such agreement or
commitment or obligating any of the Stockholders to convey or transfer any
Company Stock. There are no voting trusts, proxies or other agreements or
understandings to which the Company or any of the Stockholders is a party or is
bound with respect to the voting of any shares of capital stock of the Company.
SECTION 4.3. NO SUBSIDIARIES. The Company has no subsidiaries and, except
as set forth on SCHEDULE 4.3, it does not own any capital stock of any
corporation or any interest in any partnership, joint venture or limited
liability company.
SECTION 4.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been approved by the Board of Directors of the Company and by the
Stockholders, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholders, and, assuming the due authorization, execution and delivery hereof
by PalEx and Main Street, constitutes a valid and legally binding agreement of
the Company and the Stockholders, enforceable against the Company and the
Stockholders in accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights generally
and (ii) general equitable principles.
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(b) The execution and delivery of this Agreement by each of the Company
and the Stockholders do not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company under any of the terms, conditions or provisions of (i) the articles
of incorporation or by-laws of the Company (ii) any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
the Stockholders is now a party or by which any of the Stockholders or the
Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the Stockholders of the transactions
contemplated hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through (iii) of
the preceding sentence, subject, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining (prior to
the Effective Time) consents required from commercial lenders, lessors or other
third parties. Excluded from the foregoing sentences of this paragraph (b),
insofar as they apply to the terms, conditions or provisions of the items
described in clauses (ii) and (iii) of the first sentence of this paragraph (b),
are such violations, conflicts, breaches, defaults, terminations, accelerations
or creations of liens, security interests, charges or encumbrances that would
not, in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(c) Except for (i) the filing in connection with the IPO of a registration
statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission ("SEC") pursuant to the Securities Act of 1933 (the "1933
Act"), (ii) the declaration of the effectiveness thereof by the SEC and filings
with various state blue sky authorities, and (iii) the making of the Merger
Filings with the Secretary of State of the State of Delaware and the Secretary
of State of the State of Florida in connection with the Merger, no declaration,
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Company and the Stockholders or
the consummation by the Company and the Stockholders of the transactions
contemplated hereby.
SECTION 4.5. FINANCIAL STATEMENTS. The audited financial statements for
the fiscal year ended July 28, 1996 and unaudited interim financial statements
of the Company for the three months ended October 27, 1996 (collectively, the
"Company Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
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SECTION 4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
SCHEDULE 4.6 attached hereto, the Company did not have at October 27, 1996, nor
has it incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Company Financial Statements or reflected in the notes thereto or
(ii) which were incurred after October 27, 1996 and were incurred in the
ordinary course of business and consistent with past practices, and (b)
liabilities and obligations which are of a nature not required to be reflected
in the Company Financial Statements prepared in accordance with generally
accepted accounting principles consistently applied and which were incurred in
the normal course of business and are described on SCHEDULE 4.6. SCHEDULE 4.6
includes a reasonable estimate by the Company and the Stockholders of the
maximum amount which may become payable with respect to any such liabilities
which are contingent.
SECTION 4.7. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 4.7 sets forth an
accurate list of the accounts and notes receivable of the Company as of December
19, 1996, including any such amounts which are not reflected in the Company's
balance sheet. Receivables from and advances to employees, the Stockholders and
any entities or persons related to or affiliated with the Stockholders are
separately identified on SCHEDULE 4.7. SCHEDULE 4.7 also sets forth an accurate
aging of all accounts and notes receivable as of November 30, 1996 showing
amounts due in 30-day aging categories. The trade and other accounts receivable
of the Company which are classified as current assets on the October 27, 1996
balance sheet are bona fide receivables, were acquired in the ordinary course of
business, are stated in accordance with generally accepted accounting principles
and, subject to the reserve for doubtful accounts, need not be written-off as
uncollectible.
SECTION 4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since July 28, 1996,
there has not been any material adverse change in the business, operations,
properties, assets, liabilities, condition (financial or other), results of
operations or prospects of the Company, nor, except as disclosed in SCHEDULE 4.8
has there been:
(i) any damage, destruction or loss (whether or not covered by
insurance) alone or in the aggregate, materially adversely affecting
the properties or business of the Company;
(ii) any change in the authorized capital stock of the Company or in its
securities outstanding or any change in the Stockholders' ownership
interests or any grant of any options, warrants, calls, conversion
rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the
Company;
(iv) any increase in the compensation payable or to become payable by the
Company to the Stockholders or any of its officers, directors,
employees, consultants or agents,
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except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(v) any work interruptions, labor grievances or claims filed, or any
proposed law, regulation or event or condition of any character
materially adversely affecting the business or future prospects of
the Company;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, the Stockholders and their
affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or other
obligation owing to the Company;
(viii)any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business;
(ix) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets outside of the
ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party or any of its property is subject; or
(xiii)any transaction by the Company outside the ordinary course of
business.
SECTION 4.9. LITIGATION. Except as disclosed in the SCHEDULE 4.9 attached
hereto, there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Company or any of the Stockholders, threatened against,
relating to or affecting the Company or any of the Stockholders, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain the consummation of the
Merger or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a Company Material Adverse
Effect. Except as disclosed in SCHEDULE 4.9 attached hereto, neither the Company
nor any of the Stockholders is not subject to any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or authority, or
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any arbitrator which prohibits or restricts the consummation of the transactions
contemplated hereby or would have a Company Material Adverse Effect.
SECTION 4.10. REGISTRATION STATEMENT. To the best of the Company's and
Stockholders' knowledge and belief, none of the information to be supplied by
the Company for inclusion in the Registration Statement will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 4.11. NO VIOLATION OF LAW. Except as disclosed in SCHEDULE 4.11
attached hereto, the Company is not in violation of nor has it been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in SCHEDULE 4.11 attached hereto, as of the date of this Agreement, no
investigation or review by any governmental or regulatory body or authority is
pending or, to the knowledge of the Company, threatened, nor has any
governmental or regulatory body or authority indicated an intention to conduct
the same, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen, will not have a Company Material Adverse Effect. The
Company has all permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals necessary to conduct
their businesses as presently conducted (collectively, the "Company Permits"),
except for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a Company Material Adverse Effect. The Company is not
in violation of the terms of any Company Permit, except for delays in filing
reports or violations which, alone or in the aggregate, would not have a Company
Material Adverse Effect.
SECTION 4.12. COMPLIANCE WITH AGREEMENTS. Except as disclosed in SCHEDULE
4.12 attached hereto, the Company is not in breach or violation of or in default
in the performance or observance of any term or provision of, and no event has
occurred which, with lapse the of time or action by a third party, could result
in a default under, (a) the charter, by-laws or similar organizational
instruments of the Company or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which the Company is a party or by which it is bound or to
which any of its property is subject, which breaches, violations and defaults,
in the case of clause (b) of this SECTION 4.12, would have, in the aggregate, a
Company Material Adverse Effect.
SECTION 4.13. TAXES.
(a) The Company has (i) duly filed with the appropriate governmental
authorities or will have when due all Tax Returns required to be filed for all
periods ending on or prior to the Effective Time, other than those Tax Returns
the failure of which to file would not have a Company Adverse
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Effect and such Tax Returns are true, correct and complete in all material
respects, and (ii) duly paid in full or made adequate provision for the payment
of all Taxes for all periods ending at or prior to the Effective Time. The
liabilities and reserves for Taxes reflected in the Company Financial Statements
are adequate to cover all Taxes for all periods ending at or prior to the
Effective Time and there are no material liens for Taxes upon any property or
asset of the Company thereof, except for liens for Taxes not yet due. There are
no unresolved issues of law or fact arising out of a notice of deficiency,
proposed deficiency or assessment from the IRS or any other governmental taxing
authority with respect to Taxes of the Company which, if decided adversely,
singly or in the aggregate, would have a Company Material Adverse Effect. The
Company is not a party to any agreement providing for the allocation or sharing
of Taxes with any entity that is not, directly or indirectly, a wholly-owned
corporate subsidiary of Company. Neither the Company nor any of its corporate
subsidiaries has, with regard to any assets or property held, acquired or to be
acquired by any of them, filed a consent to the application of Section 341(f) of
the Code. The Company made a valid election under Section 1362(a) of the Code,
effective May 23, 1994, to be taxed as an S corporation under the Code. As of
immediately prior to the Closing, the Company qualifies as an S corporation
within the meaning of Subchapter S of the Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
including, without limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and such term shall include any interest, fines, penalties or additional
amounts and any interest in respect of any additions, fines or penalties
attributable or imposed or with respect to any such taxes, charges, fees, levies
or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with any Taxes.
SECTION 4.14. EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in SCHEDULE 4.14 attached hereto, at the date
hereof, the Company does not maintain or contribute to any material employee
benefit plans, programs, arrangements and practices (such plans, programs,
arrangements and practices of the Company being referred to as the "COMPANY
PLANS"), including employee benefit plans within the meaning set forth in
Section 3(3) of ERISA, or other similar material arrangements for the provision
of benefits (excluding any "MULTI-EMPLOYER PLAN" within the meaning of Section
3(37) of ERISA or a "MULTIPLE EMPLOYER PLAN" within the meaning of Section
413(c) of the Code). SCHEDULE 4.14(A) attached hereto lists all Multi-employer
Plans and Multiple Employer Plans which the Company maintains or to which it
makes contributions. The Company does not have any obligation to create any
additional such plan or to amend any such plan so as to increase benefits
thereunder, except as required under the terms
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of the Company Plans, under existing collective bargaining agreements or to
comply with applicable law.
(b) Except as disclosed in SCHEDULE 4.14 attached hereto, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Company Plans that
could result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Company Material Adverse Effect, (ii) except for
premiums due, there is no outstanding material liability, whether measured alone
or in the aggregate, under Title IV of ERISA with respect to any of the Company
Plans, (iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Company Plans
subject to Title IV of ERISA other than in a "STANDARD TERMINATION" described in
Section 4041(b) of ERISA, (iv) none of the Company Plans has incurred any
"ACCUMULATED FUNDING DEFICIENCY" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Company Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit obligations
under each of the Company Plans which is subject to Title IV of ERISA did not,
as of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities, based upon reasonable actuarial
assumptions currently utilized for such Company Plan, (vi) each of the Company
Plans has been operated and administered in all material respects in accordance
with applicable laws during the period of time covered by the applicable statute
of limitations, (vii) each of the Company Plans which is intended to be
"QUALIFIED" within the meaning of Section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified and such determination has
not been modified, revoked or limited by failure to satisfy any condition
thereof or by a subsequent amendment thereto or a failure to amend, except that
it may be necessary to make additional amendments retroactively to maintain the
"QUALIFIED" status of such Company Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to
Multi-employer Plans, the Company has not made or suffered a "COMPLETE
WITHDRAWAL" or a "PARTIAL WITHDRAWAL," as such terms are respectively defined in
Sections 4203, 4204 and 4205 of ERISA and, to the best knowledge of the Company,
no event has occurred or is expected to occur which presents a material risk of
a complete or partial withdrawal under said Sections 4203, 4204 and 4205, (ix)
to the best knowledge of the Company, there are no material pending, threatened
or anticipated claims involving any of the Company Plans other than claims for
benefits in the ordinary course, and (x) the Company has no current material
liability, whether measured alone or in the aggregate, for plan termination or
complete withdrawal or partial withdrawal under Title IV of ERISA based on any
plan to which any entity that would be deemed one employer with the Company
under Section 4001 of ERISA or Section 414 of the Code contributed during the
period of time covered by the applicable statute of limitations (the "COMPANY
CONTROLLED GROUP PLANS"), and the Company does not reasonably anticipate that
any such liability will be asserted against the Company. None of the Company
Controlled Group Plans has an "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 302 of ERISA and 412 of the Code).
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(c) SCHEDULE 4.14 attached hereto contains a true and complete summary or
list of or otherwise describes all employment contracts and employee benefit
arrangements with all employees of the Company.
SECTION 4.15. LABOR MATTERS. Except as set forth in SCHEDULE 4.15 attached
hereto, (a) there are no significant controversies pending or, to the knowledge
of the Company, threatened between the Company and any of its employees, (b)
none of the Company's employees is represented by a labor union or covered by a
collective bargaining agreement, and to the knowledge of the Company, there are
no organizational efforts and no campaign is under way to establish such
representation or coverage, (c) the Company has, to the knowledge of the
Company, complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (d) no person has, to the knowledge of the
Company, asserted that the Company is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing, except for such controversies, organizational efforts, non-compliance
and liabilities which, singly or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect.
SECTION 4.16. ENVIRONMENTAL MATTERS.
(a) To the best of the Company's and Stockholders' knowledge and belief,
except as set forth in SCHEDULE 4.16 attached hereto, (i) the Company has
conducted its businesses in compliance with all applicable Environmental Laws,
including, without limitation, having all permits, licenses and other approvals
and authorizations necessary for the operation of their respective businesses as
presently conducted, (ii) none of the properties owned by the Company contain
any Hazardous Substance as a result of any activity of the Company in amounts
exceeding the levels permitted by applicable Environmental Laws, (iii) the
Company has not received any notices, demand letters or requests for information
from any Federal, state, local or foreign governmental entity or third party
indicating that the Company may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of its business,
(iv) there are no civil, criminal or administrative actions, suits, demands,
claims, hearings, investigations or proceedings pending or threatened, against
the Company relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law, (vi) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the Company as a
result of any activity of the Company during the time such properties were
owned, leased or operated by the Company, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other analysis regarding
compliance or non-compliance with any applicable Environmental Law conducted by
or which are in the possession of the Company relating to the activities of the
Company which are not listed on SCHEDULE 4.16 attached hereto prior to the date
hereof, (viii) there are no underground storage tanks on, in or under any
properties owned by the Company and no underground storage tanks have been
closed or removed from any of such properties during the time such properties
were
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owned, leased or operated by the Company, (ix) there is no asbestos or asbestos
containing material present in any of the properties owned by the Company, and
no asbestos has been removed from any of such properties during the time such
properties were owned, leased or operated by the Company, and (x) neither the
Company nor any of its respective properties are subject to any material
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for violations
of the foregoing clauses (i) through (x) that, singly or in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
(b) As used herein, "ENVIRONMENTAL LAW" means any Federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity relating to
(x) the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety or (y) the exposure to, or the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on the Closing Date. The term
Environmental Law includes, without limitation, (i) the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "HAZARDOUS SUBSTANCE" means any substance presently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
SECTION 4.17. TITLE TO ASSETS. The Company has good and marketable title
in fee simple to all its real property and good title to all its leasehold
interests and other properties, as reflected in the most recent balance sheet
included in the Company Financial Statements, except for the assets which are to
be sold or dividended to the Stockholders pursuant to Section 6.4 and properties
and assets that have been disposed of in the ordinary course of business since
the date of such balance
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sheet, free and clear of all mortgages, liens, pledges, charges or encumbrances
of any nature whatsoever, except (i) the lien for current taxes, payments of
which are not yet delinquent, (ii) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character, amount or extent and
do not materially detract from the value, or interfere with the present use of
the property subject thereto or affected thereby, or otherwise materially impair
the Company's business operations (in the manner presently carried on by the
Company), and (iii) except for such matters which, singly or in the aggregate,
could not reasonably be expected to have a Company Material Adverse Effect. All
leases under which the Company leases any substantial amount of real or personal
property have been delivered to PalEx and are in good standing, valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event which with notice or lapse of time
or both would become a default other than defaults under such leases which in
the aggregate will not cause a Company Material Adverse Effect
SECTION 4.18. INSURANCE. SCHEDULE 4.18 sets forth an accurate list as of
September 30, 1996 of all insurance policies carried by the Company and of all
insurance claims or losses in excess of $50,000 or material workmen's
compensation claims received for the past five (5) policy years. Also attached
to SCHEDULE 4.18 are true, complete and correct copies of all of the Company's
insurance policies, covering at least the past three years. None of such
policies is a "claims made" policy. The insurance policies set forth on SCHEDULE
4.18 provide adequate coverage against the risks involved in the Company's
business. Such policies are currently in full force and effect.
SECTION 4.19. INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED-PARTY
TRANSACTIONS. Except as described on SCHEDULE 4.19, no Stockholder, officer,
director or affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is a
party to an agreement or relationship, that involves the receipt by such person
of compensation or property from the Company other than through a customary
employment relationship.
SECTION 4.20. BUSINESS RELATIONS. SCHEDULE 4.20 contains an accurate list
of all customers of the Company representing five percent (5%) or more of the
Company's revenues for the twelve (12) months ended July 28, 1996 and the three
(3) months ended October 27, 1996. Except as set forth on SCHEDULE 4.20, since
July 30, 1995, none of the Company's significant customers has canceled or
substantially reduced its purchases from the Company, nor are any of such
customers threatening to do so. Except as set forth on SCHEDULE 4.20, since July
30, 1995, the Company has not experienced any difficulties in obtaining any
inventory items necessary to the operation of its business, and, to the
knowledge of the Company and the Stockholders, no such shortage of supply of
inventory items is threatened or pending. To the knowledge of the Company and
the Stockholders, no customer or supplier of the Company will cease to do
business with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby, which cessation or
reduction would reasonably be expected to have a Company Material Adverse
Effect. The Company is not required to provide any bonding or other
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financial security arrangements in any material amount in connection with any
transactions with any of its customers or suppliers.
SECTION 4.21. DISCLOSURE. The Stockholders have fully provided PalEx with
all the information that PalEx has requested in analyzing whether to consummate
the Merger. To the best of the Company's and Stockholders' knowledge and belief,
none of the information so provided nor any representation or warranty of the
Stockholders contained in this Agreement contains any untrue statement regarding
a material fact or omits to state a material fact necessary in order to make the
statements made herein or in the information provided, in light of the
circumstances under which they were made, not misleading.
SECTION 4.22. TRADEMARKS AND INTELLECTUAL PROPERTY COMPLIANCE. Company
owns or has the right to use, without any material payment to any other party,
all of its patents, trademarks (registered or unregistered), trade names,
service marks, copyrights and applications ("Intellectual Property Rights") and
the consummation of the transactions contemplated hereby will not alter or
impair such rights in any material respect. To the best of the Company's and
Stockholders' knowledge and belief, no claims are pending by any person with
respect to the ownership, validity, enforceability or use of any such
Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing which claims could reasonably be expected
to have a Company Material Adverse Effect.
SECTION 4.23. NO IMPLIED REPRESENTATIONS. Notwithstanding anything
contained in this Article or any other provision of this Agreement or any of the
related documents, it is the explicit understanding of each party hereto that
the Company and the Stockholders are not making any representation or warranty
whatsoever, express or implied, other than those representations and warranties
of the Company and the Stockholders in this Agreement and the related documents.
It is understood that any estimates, projections or other predictions which
otherwise have been provided to PalEx are not and shall not be deemed to be
representations or warranties of the Company or the Stockholders, but as the
good faith estimates and assumptions of the Company and the Stockholders
intended to be reasonable at the time made concerning the most likely course of
the Company and its businesses. The Company, the Stockholders and PalEx
acknowledge that there are uncertainties inherent in attempting to make such
estimates, projections and other predictions, that the Company, the Stockholders
and PalEx are familiar with such uncertainties, that the Company, the
Stockholders and PalEx are taking full responsibility for making their own
evaluation of the adequacy and accuracy of all estimates, projections and other
predictions so furnished to them, and that neither PalEx, the Stockholders nor
any of the Founding Companies shall have any claim against anyone with respect
thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES of PalEx and SUBSIDIARY
PalEx and Subsidiary represent and warrant to the Company as follows:
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SECTION 5.1. ORGANIZATION AND QUALIFICATION.
(a) PalEx is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. True, accurate and complete copies of
each of PalEx's Certificate of Incorporation and By-laws, as in effect on the
date hereof, including all amendments thereto, have heretofore been delivered to
the Company.
(b) Subsidiary is a corporation duly organized, validly existing and good
standing under the laws of the State of Delaware and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of
Subsidiary. True, accurate and complete copies of each of Subsidiary's
Certificate of Incorporation and By-laws, as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the Company.
SECTION 5.2. CAPITALIZATION.
(a) The authorized capital stock of PalEx consists of (i) 30,000,000
shares of PalEx Common Stock, of which 1,071,389 shares were outstanding as of
December 20, 1996, and (ii) 5,000,000 shares of preferred stock, par value $.01
per share, none of which was issued and outstanding as of December 20, 1996. All
of the issued and outstanding shares of PalEx Common Stock are validly issued
and are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth on SCHEDULE 5.2 attached hereto, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating PalEx to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital stock of
PalEx or obligating PalEx to grant, extend or enter into any such agreement or
commitment, except that PalEx declared a stock split prior to executing this
Agreement which resulted in Main Street owning 1,021,389 shares and Vance K.
Maultsby, Jr. owning 50,000 shares of PalEx Common Stock. There are no voting
trusts, proxies or other agreements or understandings to which PalEx is a party
or is bound with respect to the voting of any shares of capital stock of PalEx.
The shares of PalEx Common Stock issued to stockholders of the Company in the
Merger will be at the Effective Time duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights.
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SECTION 5.3. NO SUBSIDIARIES. Except as set forth on SCHEDULE 5.3, PalEx
has no subsidiaries and it does not own any capital stock of any corporation or
any interest in any partnership, joint venture or limited liability company.
SECTION 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) PalEx and Subsidiary have full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors and stockholders of PalEx
and Subsidiary, and no other corporate proceedings on the part of PalEx or
Subsidiary are necessary to authorize the execution and delivery of this
Agreement or the consummation by PalEx and Subsidiary of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
PalEx and Subsidiary, and, assuming the due authorization, execution and
delivery hereof by the Company and the Stockholders, constitutes a valid and
legally binding agreement of PalEx and Subsidiary enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by PalEx and Subsidiary
does not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of PalEx or
Subsidiary under any of the terms, conditions or provisions of (i) the charter
or by-laws of PalEx or Subsidiary, as applicable, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to PalEx or
Subsidiary or any of their respective properties or assets or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which PalEx or Subsidiary is now a party or by which PalEx or Subsidiary
or any of their respective properties or assets may be bound or affected. The
consummation by PalEx and Subsidiary of the transactions contemplated hereby
will not result in any violation, conflict, breach, right of termination or
acceleration or creation of liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the preceding
sentence, subject, in the case of the terms, conditions or provisions of the
items described in clause (ii) above, to obtaining (prior to the Effective Time)
PalEx Required Statutory Approvals (as defined in Section 5.4(c)) and, in the
case of the terms, conditions or provisions of the items described in clause
(iii) above, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties. Excluded from the foregoing
sentences of this paragraph (b), insofar as they apply to the terms, conditions
or provisions of the items described in clauses (ii) and (iii) of the first
sentence of this paragraph (b), are such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have
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a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of PalEx or
Subsidiary (a "PalEx Material Adverse Effect").
(c) Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, (ii) the declaration of the effectiveness thereof by
the SEC and filings with various state blue sky authorities, and (iii) the
making of the Merger Filing with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Florida in connection with the
Merger, the filings and approvals referred to in clauses (i) through (iii) are
collectively referred to as the "PALEX REQUIRED STATUTORY APPROVALS", no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by PalEx or
Subsidiary or the consummation by PalEx or Subsidiary of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not, in the aggregate, have a PalEx Material Adverse
Effect.
SECTION 5.5. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed to
the Company in writing, neither PalEx nor Subsidiary have incurred any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except those incurred in connection with the Merger, this
Agreement, the agreements with the other Founding Companies and the IPO. Except
as contemplated by the foregoing, PalEx and Subsidiary have not engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
SECTION 5.6. LITIGATION. There are no claims, suits, actions or
proceedings pending or, to the knowledge of PalEx or Subsidiary, threatened
against, relating to or affecting PalEx or Subsidiary, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
the IPO or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a PalEx Material Adverse
Effect.
SECTION 5.7. NO VIOLATION OF LAW. PalEx is not in violation of, nor has it
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority.
SECTION 5.8. AFFILIATE TRANSACTIONS. Except for the ownership by Main
Street of shares of PalEx Common Stock and Main Street's obligations and rights
under Section 7.3, no transaction has occurred and no transaction is now
proposed to which PalEx is or will be a party, in which any current affiliate of
Main Street has a direct or indirect material interest.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as otherwise contemplated by this Agreement, after the date hereof and prior to
the Closing Date or earlier termination of this Agreement, unless PalEx shall
otherwise agree in writing, the Company shall:
(a) conduct its businesses in the ordinary and usual course and consistent
with past practice;
(b) not (i) amend or propose to amend its charter or by-laws, (ii) split,
combine or reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property or
otherwise, except for the payment of dividends or distributions described in
SCHEDULE 6.1;
(c) not, except for shares issued to the Ridge Pallets, Inc. Profit
Sharing Plan in connection with the transaction described in Section 7.13
hereof, issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or any options, warrants or rights of any
kind to acquire any shares of, its capital stock of any class or any debt or
equity securities convertible into or exchangeable for such capital stock.
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or (B) borrowings to refinance existing indebtedness on terms
comparable with or better than those at the date hereof, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or any
options, warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) take or fail to
take any action which action or failure would cause the Company or the
Stockholders (except to the extent of any cash received in the Merger) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (iv) sell, pledge, dispose of or encumber any assets
or businesses other than sales in the ordinary course of business or (v) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
customers and others having business relationships with it and not engage in any
action, directly or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of PalEx to report operational matters of materiality and the
general status of ongoing operations;
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(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law or in the ordinary course of
business and consistent with past practices; and
(i) maintain with financially responsible insurance companies insurance on
its tangible assets and its businesses in such amounts and against such risks
and losses as are consistent with past practice.
SECTION 6.2. CONTROL OF THE COMPANY'S OPERATIONS. Nothing contained in
this Agreement shall give to PalEx, directly or indirectly, rights to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.3. NO - SHOP.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company and the Stockholders shall not, and
the Company shall use its best efforts to cause any officer, director or
employee of, or any attorney, accountant, investment banker, financial advisor
or other agent retained by it not to, initiate, solicit, negotiate, encourage or
provide non-public or confidential information to facilitate, any proposal or
offer to acquire all or any substantial part of the business and properties of
the Company or any capital stock of the Company, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other consideration or
combination thereof, or enter into any joint venture or partnership or similar
arrangement.
(b) The Company and the Stockholders (i) acknowledge that a breach of any
of their covenants contained in this Section 6.3 will result in irreparable harm
to PalEx which will not be compensable in money damages; and (ii) agree that
such covenant shall be specifically enforceable and that specific performance
and injunctive relief shall be a remedy properly available to the other party
for a breach of such covenant.
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SECTION 6.4. DIVIDEND OR SALE OF NONPRODUCTIVE ASSETS. The Company shall,
prior to the Closing Date, either dividend to the Stockholders or sell for cash
the assets listed on SCHEDULE 6.4. If the Company sells such assets, it shall
apply the proceeds from such sale to the reduction of outstanding debt. Any such
dividend shall not affect the total consideration due the Stockholders
hereunder; any such sale and reduction of the Company's debt shall affect the
allocation of the consideration to be received by the Stockholders in the Merger
in the manner described in SCHEDULE 2.1.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS TO INFORMATION.
(a) The Company shall afford to PalEx and Subsidiary and their
accountants, counsel, financial advisors and other representatives (the "PALEX
REPRESENTATIVES") and PalEx and Subsidiary shall afford to the Company and its
accountants, counsel, financial advisors and other representatives (the "COMPANY
REPRESENTATIVES") full access during normal business hours throughout the period
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly to
one another all due diligence information requested by the other party. PalEx
and Subsidiary shall hold and shall use their reasonable best efforts to cause
the PalEx Representatives to hold, and the Company shall hold and shall use its
reasonable best efforts to cause the Company Representatives to hold, in strict
confidence all non-public information furnished to it in connection with the
transactions contemplated by this Agreement, except that each of PalEx,
Subsidiary and the Company may disclose any information that it is required by
law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with its
terms, each party shall promptly redeliver to the other all non-public written
material provided pursuant to this Section 7.1 and shall not retain any copies,
extracts or other reproductions of such written material. In the event of such
termination, all documents, memoranda, notes and other writings prepared by
PalEx and Subsidiary or the Company based on the information in such material
shall be destroyed (and PalEx, Subsidiary and the Company shall use their
respective reasonable best efforts to cause their advisors and representatives
to similarly destroy their documents, memoranda and notes), and such destruction
(and reasonable best efforts) shall be certified in writing by an authorized
officer supervising such destruction.
(c) The Company shall promptly advise PalEx in writing of any change or
the occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, any Company
Material Adverse Effect.
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SECTION 7.2. REGISTRATION STATEMENT. PalEx and the Founding Companies
shall file with the SEC as soon as is reasonably practicable after the date
hereof the Registration Statement and shall use all reasonable efforts to have
the Registration Statement declared effective by the SEC as promptly as
practicable. PalEx shall also take any action required to be taken under
applicable state blue sky or securities laws in connection with the issuance of
PalEx Common Stock. PalEx and the Company shall promptly furnish to each other
all information, and take such other actions, as may reasonably be requested in
connection with making such filings. The information provided and to be provided
by PalEx and the Company, respectively, for use in the Registration Statement
shall be true and correct in all material respects without omission of any
material fact which is required to make such information not false or misleading
as of the date thereof and in light of the circumstances under which given or
made.
SECTION 7.3. EXPENSES AND FEES. Main Street shall pay the fees and
expenses of the independent public accountants and legal counsel to PalEx and
all filing, printing and other reasonable, documented fees and expenses
associated with the IPO up to $1,250,000. PalEx shall pay or reimburse Main
Street from the proceeds of the IPO for such fees and expenses in excess of
$1,250,000. Neither the Company nor the Stockholders will be liable for any
portion of the above expenses in the event the IPO is not closed. PalEx shall
also pay (i) the underwriting discounts and commissions payable in connection
with the sale of PalEx Common Stock in the IPO, (ii) the fees payable to Raymond
James & Associates and Mr. Tucker Bridwell, as detailed on SCHEDULE 7.3 and
(iii) the fees and expenses incurred in delivering the tax opinion set forth in
Section 9.2(d). All other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
SECTION 7.4. AGREEMENT TO COOPERATE. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 7.5. PUBLIC STATEMENTS. Except as may require by law, no party
hereto shall issue any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby without the
prior written consent of PalEx and the Company.
SECTION 7.6. NOTIFICATION OF CERTAIN MATTERS. Each of the Company, the
Stockholders and PalEx agrees to give prompt notice to each of the others of,
and to use their respective reasonable best efforts to prevent or promptly
remedy, (i) the occurrence or failure to occur or the impending or threatened
occurrence or failure to occur, of any event which occurrence or failure to
occur would be likely to cause any of its representations or warranties in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time, or any of the information supplied by it
for use in the Registration Statement to be untrue in any material respect or to
omit any material fact, at any time from the date hereof until 25 days following
the Closing, and (ii) any material failure on its part to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; PROVIDED, HOWEVER, that the delivery
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of any notice pursuant to this Section 7.6 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
SECTION 7.7. DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) After the Effective Time, PalEx shall, to the fullest extent permitted
under applicable law, indemnify and hold harmless, each present and former
director, officer and agent of the Company (each, together with such person's
heirs, executors or administrators, an "INDEMNIFIED PARTY" and collectively, the
"INDEMNIFIED PARTIES") against any costs or expenses (including reasonable
attorneys fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of, relating to or in connection with any action or
omission of PalEx occurring prior to the Effective Time (including, without
limitation, acts or omissions in connection with such persons serving as an
officer, director or other fiduciary in any entity if such service was at the
request or for the benefit of the Company). In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) PalEx shall pay the reasonable fees and expenses of counsel
selected by the indemnified parties, which counsel shall be reasonably
satisfactory to PalEx, promptly after statements therefor are received, (ii)
PalEx will cooperate in the defense of any such matter, and (iii) any
determination required to be made with respect to whether an indemnified party's
conduct complies with the standards set forth under the DGCL or other applicable
statutes and PalEx's or the Surviving Corporation's respective Certificates of
Incorporation or By-Laws shall be made by independent legal counsel acceptable
to PalEx as the case may be, and the indemnified party; PROVIDED, HOWEVER, that
PalEx shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld).
(b) In the event that PalEx or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in each such case, proper provisions shall be made so that the
successors and assigns of PalEx shall assume the obligations set forth in this
Section 7.7.
SECTION 7.8. CORRECTIONS TO THE REGISTRATION STATEMENT. Prior to the
effectiveness of the IPO, and until the expiration of the 25th day thereafter,
each of the Company, the Stockholders and PalEx shall correct promptly any
information provided by it to be used specifically in the Registration Statement
that shall have become false or misleading in any material respect and shall
take all steps necessary to file with the SEC and have declared effective or
cleared by the SEC any amendment or supplement to the Registration Statement so
as to correct the same and to cause the Prospectus included within such
Registration Statement as so corrected to be disseminated to the extent required
by applicable law.
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SECTION 7.9. PREPARATION AND FILING OF TAX RETURNS.
(a) Each party hereto shall, and shall cause its affiliates to, provide to
each of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in conducting
any audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies at no cost to the requesting party of
all relevant portions of relevant returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by taxing authorities and relevant records concerning the
ownership and tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file returns pursuant
to this Agreement shall bear all costs of filing such returns.
(b) Each of the Company, PalEx and the Stockholders shall comply with the
tax reporting requirements of Section 1.368-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as a tax-free
reorganization under Section 368(a) of the Code unless otherwise required by
law. The parties have independently determined and hereby agree that the
transaction constitutes a tax-free reorganization under Section 368(a) of the
Code and specifically that:
(i) Neither the Company nor PalEx is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(ii) The fair market value of the assets of the Company exceeds the
sum of its liabilities, plus the amount of liabilities, if any, to which
the assets are subject.
(iii) The Company is not under jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(iv) The fair market value of the PalEx Common Stock and other
consideration received by the Stockholders, will be approximately equal to
the fair market value of the Company Stock surrendered in the Merger.
(v) There is no intercorporate indebtedness existing between PalEx
and the Company that was issued, acquired, or will be settled at a
discount.
(vi) None of the compensation received by any Stockholder-employee
of the Company after the Merger will be separate consideration for, or
allocable to, any of their securities of the Company. None of the shares
of PalEx Common Stock received by the Stockholders in the Merger will be
separate consideration for, or allocable to, any employment agreement; and
the compensation paid to the Stockholders in their capacity as employees
including, but not limited to, amounts paid pursuant to the employment
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agreements between the Company and the Stockholders and incentive
compensation in the form of stock options, will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(vii) The proposed Merger is effected through the laws of the United
States, a State thereof or the District of Columbia.
(viii)The proposed Merger is being undertaken for reasons germane to
the business of the Company.
SECTION 7.10. COVENANTS CONCERNING TAXES.
(a) (i) The Stockholders shall pay (and shall indemnify, defend and hold
harmless PalEx, as the Surviving Corporation, from and against liability with
respect to) any and all Taxes, interest, penalties and additions to Taxes that
are imposed on them or the Company: (i) attributable to the taxable income of
the Company for all taxable periods during which the Company was an S
corporation (the "S Corporation Period"); and (ii) as a result of the Company's
S election being treated as invalid or ineffective for any reason or such
election being revoked or terminated prior to the Merger.
(ii) The Surviving Corporation, shall pay or cause to be paid (and
shall indemnify, defend and hold harmless the Stockholders from and against
liability with respect to) any and all Taxes, interest, penalties and additions
to Taxes attributable to the taxable income of the Surviving Corporation for the
period after the Merger (the "C Corporation Period").
(b) If the Stockholders receive notice of an intention by a taxing
authority to audit any return of the Stockholders that includes any item of
income, gain, deduction, loss or credit reported by the Company with respect to
the S Corporation Period that the Stockholders have reason to believe may affect
the Surviving Corporation's tax returns during the C Corporation Period, the
Stockholders shall inform the Surviving Corporation, in writing, of the audit
promptly after receipt of such notice. If the Stockholders receive notice from a
taxing authority of any proposed adjustment for which the Surviving Corporation
may be required to indemnify hereunder (a "Proposed Adjustment"), the
Stockholders shall give notice to the Surviving Corporation of the Proposed
Adjustment promptly after receipt of such notice from a taxing authority. Within
twenty (20) days following its receipt of such notice, the Surviving Corporation
shall give notice to the Stockholders of its determination as to whether it
desires the Stockholders to contest such Proposed Adjustment. Upon such request
the Stockholders, at their option and upon written notice to the Surviving
Corporation within ten (10) days after their receipt of the notice described in
the preceding sentence, shall (i) contest the Proposed Adjustment at the
Surviving Corporation's expense and permit the Surviving Corporation to
participate in (but not to control) such proceedings, or (ii) permit the
Surviving Corporation to contest the Proposed Adjustment (including pursuing all
administrative and judicial appeals and demands). The Surviving Corporation
shall pay to the Stockholders on demand all reasonable costs and expenses
(including reasonable attorneys' and accountants' fees)
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that the Stockholders may incur in contesting such Proposed Adjustments. The
Stockholders shall not make, accept or enter into a settlement or other
compromise, with respect to any Taxes indemnified hereunder, or forego or
terminate any proceeding undertaken hereunder without the consent of the
Surviving Corporation, which consent shall not be unreasonably withheld. The
Stockholders will reasonably assist if the Surviving Corporation contests any
Proposed Adjustment.
(c) If the Surviving Corporation receives notice of an intention by a
taxing authority to audit any return of the Surviving Corporation that includes
any item of income, gain, deduction, loss or credit reported by the Surviving
Corporation with respect to the C Corporation Period that the Surviving
Corporation has reason to believe may affect the Stockholders' tax returns
during the S Corporation Period, the Surviving Corporation shall inform the
Stockholders in writing, of the audit promptly after receipt of such notice. If
the Surviving Corporation receives notice from a taxing authority of any
proposed adjustment for which the Stockholders may be required to indemnify the
Surviving Corporation hereunder (a "Surviving Corporation Proposed Adjustment"),
the Surviving Corporation shall give notice to the Stockholders of the Surviving
Corporation Proposed Adjustment promptly after receipt of such notice from a
taxing authority. Upon receipt of such notice from the Surviving Corporation,
the Stockholders may, by in turn giving prompt written notice to the Surviving
Corporation, request that the Surviving Corporation contest such Surviving
Corporation Proposed Adjustment. If the Stockholders request that any Surviving
Corporation Proposed Adjustment be contested, then the Surviving Corporation
shall contest the Surviving Corporation Proposed Adjustment (including pursuing
all administrative and judicial appeals and processes) at the Stockholders'
expense and shall permit the Stockholders to participate in (but not to control)
such proceeding.
(d) The parties shall cooperate fully with each other in all matters
relating to Taxes and in the determination of amounts payable hereunder. In the
case of disagreement as to the course of action to be pursued in dealing with
taxing authorities (including, without limitation, matters with respect to
preparation and filing of tax returns, conduct of audits, and proceedings in
courts), the decision of the party (the Surviving Corporation, on the one hand,
or the Stockholders, on the other hand) who will economically benefit from or be
burdened by the course of action (or in the case both parties benefit and/or are
burdened, the decision of the party with the greatest benefit or burden) shall
control.
SECTION 7.11. REGISTRATION RIGHTS.
(a) If at any time or times after the date hereof but prior to the third
anniversary of the Effective Time, PalEx shall determine to register any of its
securities (for itself or for any holder of securities of PalEx) under the 1933
Act or any successor legislation (other than the Registration Statement or a
registration relating to stock option plans, employee benefit plans or a
transaction pursuant to Rule 145 under the Act), and in connection therewith
PalEx may lawfully register the PalEx Common Stock held by the Stockholders and
Main Street, PalEx will promptly give written notice thereof to the Stockholders
and Main Street and will include in such registration and effect the
registration under the 1933 Act of all Registrable Securities (as hereinafter
defined )that the
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Stockholders and Main Street may request in writing by notice delivered to PalEx
within 20 days after receipt by the Stockholders and Main Street of the notice
given by PalEx; PROVIDED, HOWEVER, that in connection with any such offering by
PalEx of any of its securities, no such registration of Registrable Securities
shall be required if the managing underwriter, if any, for PalEx advises it in
writing that including all or part of the Registrable Shares in such offering
will materially adversely affect the proposed offering and jeopardize PalEx 's
ability to sell its own securities in such offering. If such managing
underwriter advises PalEx that, in its opinion, part of the Registrable
Securities may be included in such offering without materially adversely
affecting the proposed offering, then PalEx shall be obligated to include such
lesser number of Registrable Securities in such offering, which shares shall be
taken from those owned and held by a group consisting of the Stockholders, Main
Street and other holders of PalEx Common Stock having registration rights that
are PARI PASSU with those of the Stockholders and Main Street, and such
limitation shall be imposed upon the Stockholders and such other holders pro
rata on the basis of the total number of shares of PalEx Common Stock owned by
the Stockholders, Main Street and such other holders or obtainable by them upon
the exercise of rights with respect to other securities owned by them. All
expenses of such registration and offering shall be borne by the Company, except
that the Stockholders and Main Street shall bear underwriting commissions and
discounts attributable to their Registrable Securities being registered and the
fees and expenses of separate counsel, if any, for such Stockholders and Main
Street. The Stockholders and Main Street shall be entitled to an unlimited
number of registrations under this Section 7.11.
(b) For the purposes of this Section 7.11, the term "Registrable
Securities" shall mean (i) the PalEx Common Stock currently held by Main Street,
(ii) PalEx Common Stock to be issued in connection with the Merger, and (iii)
any PalEx Common Stock issued or issuable with respect to the shares identified
in (i) and (ii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
(c) Whenever, under the preceding paragraphs of this Section 7.11, PalEx
is required hereunder to register Registrable Securities, PalEx shall as
expeditiously as possible:
(i) Prepare and file with the SEC a registration statement with
respect to the Registrable Securities that complies with all requirements
of the Act;
(ii) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Act with respect to the
sale of securities covered by such registration statement for the period
necessary to complete the proposed public offering (but in no event for a
period in excess of ninety (90) days);
(iii) Furnish to each Stockholder such copies of each preliminary
and final prospectus and such other documents as each such Stockholder may
reasonably request to facilitate the disposition of such Stockholder's
Registrable Securities;
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(iv) Enter into an underwriting agreement with customary terms and
provisions as reasonably agreed by PalEx and the proposed underwriter, if
any, of the offering,
(v) Use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under applicable state
securities or "blue-sky" laws, provided that PalEx shall not be required
in connection therewith or as a condition thereto to qualify to do
business as a foreign corporation in any such jurisdiction wherein it is
not so qualified; and
(vi) Furnish to each selling Stockholder a signed counterpart,
addressed to the Stockholders, of
(A) an opinion of counsel to PalEx, and
(B) comfort letter(s) signed by the independent public
accountants who have certified PalEx's financial
statements included in the registration statement,
in each case, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountant's letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountant's letters delivered to the underwriters in underwritten public
offerings of securities.
(d) PalEx shall have the right to select the managing underwriter or
underwriters for any underwritten offering made pursuant to a registration under
this Section 7.11.
(e) In connection with any underwritten offering by PalEx in which the
Stockholders participate, the Stockholders shall, if requested by the managing
underwriter or underwriters thereof, agree not to sell any of their Registrable
Securities or any other securities of PalEx owned by such Stockholders in any
transaction other than pursuant to such underwritten offering for a period
beginning 60 days prior to the date PalEx and the underwriter reasonably expect
the registration statement to become effective, and for such period after the
effective date of the registration statement as is agreed upon by the
underwriters and PalEx (not to exceed 180 days), provided that the PalEx's
officers and directors and each holder of 5% or more of PalEx's issued and
outstanding PalEx Stock also agree to such limitations.
(f) PalEx may delay any underwritten offering pursuant to Section 7.11
when a condition or pending transaction exists the disclosure of which would
reasonably be expected to have a material adverse effect on the proposed
offering.
(g) PalEx will indemnify each Stockholder, each of its officers, directors
and partners, and each other person, if any, who controls such Stockholder
within the meaning of the Section 15
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of the 1933 Act, against any losses, claims, damages, expenses, or liabilities
to which such persons may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or action in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement or any
preliminary prospectus or final prospectus or amendment or supplement thereto on
the effective date thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
such persons for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that PalEx will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, or any
preliminary prospectus or final prospectus or amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to PalEx
through an instrument duly executed by such person specifically for use in the
preparation thereof.
It shall be a condition precedent to the obligation of PalEx to include in
any registration statement any Registrable Securities then held by a Stockholder
that PalEx shall have received an undertaking, satisfactory to it and the
managing underwriter or underwriters, from each Stockholder to indemnify and
hold harmless (in the same manner and to the same extent as set forth in the
preceding paragraph) PalEx, each director of PalEx, each officer of PalEx who
shall sign such registration statement and the managing underwriter or
underwriters and any person who controls such Underwriters or PalEx within the
meaning of the 1933 Act, with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, if such statement or omission
was made in reliance upon and in conformity with information furnished to PalEx
through an instrument duly executed by the Stockholder specifically for use in
the preparation of such registration statement, preliminary prospectus or final
prospectus or such amendment or supplement thereto.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs in this Section 7.11, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assumed the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses incurred by the latter in connection with the
defense thereof.
SECTION 7.12. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale of
PalEx Common Stock to the public without registration, PalEx agrees to use its
best efforts to:
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(i) make and keep public information regarding PalEx available as those
terms are understood and defined in Rule 144 under the 1933 Act, at all times
from and after 90 days following the effective date of the first registration
under the 1933 Act filed by PalEx for an offering of its securities to the
general public;
(ii) file with the SEC in a timely manner all reports and other documents
required of PalEx under the 1933 Act and the 1934 Act at any time after it has
become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted PalEx Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by PalEx as to its compliance with the reporting requirements of Rule 144 (at
any time from and after 90 days following the effective date of the first
registration statement filed by PalEx for an offering of its securities to the
general public), and of the 1933 Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of PalEx, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
SECTION 7.13. REPAYMENT OF CERTAIN COMPANY DEBT. Upon the consummation of
the Merger and closing of the IPO, PalEx shall, on the Consummation Date, use a
portion of the proceeds from the IPO to repay in full certain indebtedness of
the Company as listed in SCHEDULE 7.12.
SECTION 7.14 CONTRIBUTION TO COMPANY PROFIT SHARING PLAN. PalEx shall make
a one-time contribution of PalEx Common Stock to the Ridge Pallets Inc. Profit
Sharing Plan (the "Plan") concurrently with the consummation of the IPO. PalEx
shall contribute that number of shares of PalEx Common Stock with a value equal
to $618,750 based on a price per share of PalEx Common Stock equal to the
mid-point of the estimated pricing range as set forth in the preliminary
prospectus relating to the IPO, adjusted to reflect a discount of 25%. The
contribution of PalEx Common Stock shall be allocated among the Company's
employees based on the terms of the Plan.
ARTICLE VIII
INDEMNIFICATION
The Stockholders and PalEx each make the following covenants:
SECTION 8.1. PALEX LOSSES.
(a) The Stockholders agree to indemnify and hold harmless PalEx and its
directors, officers, employees, representatives, agents and attorneys from,
against and in respect of any and all PalEx Losses (as defined below) suffered,
sustained, incurred or required to be paid by any of them
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by reason of (i) any representation or warranty made by the Company or the
Stockholders in or pursuant to this Agreement being untrue or incorrect in any
respect; (ii) any failure by the Company or the Stockholders to observe or
perform their covenants and agreements set forth in this Agreement or any other
agreement or document executed by them in connection with the transactions
contemplated hereby; and (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the Company or the Stockholders contained in any
preliminary prospectus, relating to the IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the Company or the Stockholders required to be stated
therein or necessary to make the statements therein not misleading, and not
provided to PalEx or its counsel by the Company or the Stockholders; PROVIDED,
HOWEVER, that such indemnity shall not inure to the benefit of PalEx to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Stockholders provided, in writing, corrected information to PalEx or its counsel
for inclusion in the final prospectus prior to distributing such prospectus, and
such information was not so included. This Section 8.1 is intended to indemnify
PalEx and its directors, officers, employees, representatives, agents and
attorneys from the results of their negligence. The Stockholders' obligations
pursuant to this Section 8.1 shall expire one (1) year after the Closing, except
with respect to (x) obligations under Sections 4.13 and 7.10 hereof, which shall
survive until the earlier of (A) the expiration of the applicable periods
(including any extensions) of the respective statutes of limitation applicable
to the payment of the Taxes or (B) the completion of the final audit and
determinations by the applicable taxing authority and final disposition of any
deficiency resulting therefrom; and (y) solely to the extent that PalEx actually
incurs liability under the 1933 Act or the 1934 Act, the obligations under
clause (iii) above shall survive until the expiration of any applicable statute
of limitations with respect to such claims.
(b) "PalEx Losses" shall mean all damages (including, without limitation,
amounts paid in settlement with the Stockholders' consent, which consent may not
be unreasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorneys' fees), penalties, fines, interest and monetary sanctions, including,
without limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the rights of PalEx or such other persons to indemnification
hereunder.
SECTION 8.2. STOCKHOLDERS LOSSES.
(a) PalEx agrees to indemnify and hold harmless the Stockholders, for and
in respect of any and all Stockholders Losses (as defined below) suffered,
sustained, incurred or required to be paid by the Stockholders by reason of (i)
any representation or warranty made by PalEx in or pursuant to this Agreement
being untrue or incorrect in any respect; (ii) any failure by PalEx to observe
or perform its covenants and agreements set forth in this Agreement or any other
agreement
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or document executed by it in connection with the transactions contemplated
hereby; or (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating to PalEx or any of the Founding Companies other than the Company
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to PalEx or any of the Founding Companies
other than the Company required to be stated therein or necessary to make the
statements therein not misleading. This Section 8.2 is intended to indemnify the
Stockholders from the results of their negligence. PalEx's obligations under
this Section 8.2 shall expire one year after Closing, except that, if the
Stockholders actually incur liability under the 1933 Act or the 1934 Act, the
obligations under clause (iii) above shall survive until the expiration of any
applicable statute of limitations with respect to such claims.
(b) "Stockholder's Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the consent of PalEx, which consent
may not be reasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorneys' fees), penalties, fines, interest and monetary sanctions, including,
without limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the right of the Stockholders to indemnification hereunder.
SECTION 8.3. NOTICE OF LOSS. A notice setting forth in reasonable detail
the breach or other matter which is asserted shall be promptly given to the
Indemnifying Party (as defined below) and, if such matter arises out of a suit,
action, investigation, proceeding or claim, such notice shall be given within
thirty (30) days after the Indemnified Party (as defined below) has knowledge of
the matter. The failure of the Indemnified Party to give notice hereunder shall
not release the Indemnifying Party from its obligations under this Article VIII,
except to the extent the Indemnifying Party is actually prejudiced by such
failure to give prompt notice. With respect to PalEx Losses, the Stockholders
shall be the Indemnifying Party and PalEx and its respective directors,
officers, employees, representatives, agents and attorneys shall be the
Indemnified Parties. With respect to Stockholders Losses, PalEx shall be the
Indemnifying Party and the Stockholders shall be the Indemnified Party.
SECTION 8.4. RIGHT TO DEFEND. Upon receipt of notice of any matter for
which indemnification might be claimed by an Indemnified Party, the Indemnifying
Party shall be entitled to defend, contest or otherwise protect against any such
matter at its own cost and expense, and the Indemnified Party must cooperate in
any such defense or other action. The Indemnified Party shall have the right,
but not the obligation, to participate at its own expense in defense thereof by
counsel of its own choosing, but the Indemnifying Party be entitled to control
the defense unless the Indemnified Party has relieved the Indemnifying Party
from liability with respect to the particular matter or the Indemnifying Party
fails to assume defense of the matter. In the event the
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Indemnifying Party shall fail to defend, contest or otherwise protect in a
timely manner against any matter, the Indemnified Party shall have the right,
but not the obligation, thereafter to defend, contest or otherwise protect
against the same and make any compromise or settlement thereof and recover the
reasonable cost thereof from the Indemnifying Party including, without
limitation, reasonable attorneys' fees, disbursements and all amounts paid as a
result of such suit, action, investigation, claim or proceeding or the
compromise or settlement thereof; provided, however, that the Indemnified Party
must send a written notice to the Indemnifying Party of any such proposed
settlement or compromise, which settlement or compromise the Indemnifying Party
may reject, in its reasonable judgment, within ten (10) days of receipt of such
notice. Failure to reject such notice within such ten (10) day period shall be
deemed an acceptance of such settlement or compromise. The Indemnified Party
shall have the right to effect a settlement or compromise over the objection of
the Indemnifying Party; provided, that if (i) the Indemnifying Party is
contesting such claim in good faith or (ii) the Indemnifying Party has assumed
the defense from the Indemnified Party, the Indemnified Party waives any right
to indemnity therefor. If the Indemnifying Party undertakes the defense of such
matters, the Indemnified Party shall not, so long as the Indemnifying Party does
not abandon the defense thereof, be entitled to recover from the Indemnifying
Party any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written consent
of the Indemnifying Party.
SECTION 8.5. COOPERATION. Each of PalEx, the Company and the Stockholders
and each of their affiliates, successors and assigns shall cooperate with each
other in the defense of any suit, action, investigation, proceeding or claim by
a third party and, during normal business hours, shall afford each other access
to their books and records and employees relating to such suit, action,
investigation, proceeding or claim and shall furnish each other all such further
information that they have the right and power to furnish as may reasonably be
necessary to defend such suit, action, investigation, proceeding or claim.
SECTION 8.6. EXCLUSIVE REMEDY. The indemnification provided for in this
Section 8 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party, provided that, nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement.
SECTION 8.7. LIMITATION UPON INDEMNITY.
(a) Neither the Stockholders nor PalEx shall be entitled to
indemnification from the other under the provisions of this Article VIII until
such time as the claims subject to indemnification by such party exceed, in the
aggregate, Three Hundred Sixty Thousand Dollars ($360,000) (the "Indemnity
Deductible").
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(b) The aggregate indemnification obligations of the Stockholders under
Article VIII shall be limited to the obligations in excess of the Indemnity
Deductible but not more than Thirty-Six Million Dollars ($36,000,000); PROVIDED,
HOWEVER, if the per share price of the PalEx Common Stock is less than the per
share price of the PalEx Common Stock issued in the IPO, the foregoing limit on
indemnity obligations shall be reduced by the difference in such prices
multiplied by the number of shares of PalEx Common Stock issued to the
Stockholders pursuant to this Agreement.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date and continued fulfillment as
of the Consummation Date of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed;
(b) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect and no proceeding for
that purpose shall have been instituted by the SEC or any state regulatory
authorities;
(c) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the IPO or the Merger
shall have been issued and remain in effect;
(d) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the Merger
or make the consummation of the Merger illegal; and
(e) all material governmental and third party waivers, consents, orders
and approvals required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect.
SECTION 9.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date and
continued fulfillment as of the Consummation Date of the following additional
conditions:
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(a) PalEx and Subsidiary shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of PalEx and Subsidiary
contained in this Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if made at and
as of such date, and the Company shall have received a certificate of the chief
executive officer of PalEx and Subsidiary to that effect;
(b) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to the Stockholders of the Merger;
(c) the Company shall have received an opinion from the legal or
accounting advisors to PalEx, at the expense of PalEx, that the Merger will
constitute a tax-free reorganization under Section 368 of the Code, in which
regard the Company and the Stockholders shall provide representations reasonably
required by such advisors in providing such opinion;
(d) All conditions to the merger of the other Founding Companies, on
substantially the same terms as provided herein, with subsidiaries of PalEx
shall have been satisfied or waived by the applicable party.
SECTION 9.3. CONDITIONS TO OBLIGATIONS OF PALEX TO EFFECT THE MERGER.
Unless waived by PalEx, the obligations of PalEx to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on and as
of the date made and on and as of the Closing Date as if made at and as of such
date, and PalEx shall have received a Certificate of the President or Vice
President - Finance of the Company to that effect;
(b) the Stockholders shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Stockholders
contained in this Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if made at and
as of such date, and PalEx shall have received a Certificate of each Stockholder
to that effect;
(c) PalEx shall have received an opinion governed by, and interpreted in
accordance with, the Legal Opinion Accord of the ABA Section of Business Law
(1991) from Holland & Knight, special counsel to the Company, dated the Closing
Date, reasonably satisfactory to PalEx and Subsidiary or their counsel;
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(d) PalEx shall have received "COMFORT" letters in customary form from the
Company's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to PalEx) with respect to certain financial statements and other
financial information included in the Registration Statement and any subsequent
changes in specified balance sheet and income statement items, including total
assets, working capital, total stockholders' equity, total revenues and the
total and per share amounts of net income; and
(e) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to PalEx of the Merger.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date under the following conditions:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by April 1, 1997 otherwise than
on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of the Company or any of
the Stockholders or any of their affiliates or associates;
(iii) if PalEx or Subsidiary (A) fails to perform in any material
respect any of their respective material covenants in this Agreement and
(B) does not cure such default in all material respects within 30 days
after written notice of such default is given to PalEx and Subsidiary; or
(iv) if PalEx fails to complete its acquisitions of Fraser or
Interstate.
(b) PalEx shall have the right to terminate this Agreement:
(i) if the Merger is not completed by April 1, 1997 otherwise than
on account of delay or default on the part of PalEx or any of its
stockholders or any of their affiliates or associates;
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(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of PalEx or any of its 5%
stockholders or any of their affiliates or associates;
(iii) if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is given to the Company by PalEx;
(iv) if the Stockholders (A) fail to perform in any material respect
any of their material covenants in this Agreement and (B) do not cure such
default in all material respects within 30 days after written notice of
such default is given to the Stockholders by PalEx; or
(v) if PalEx fails to complete its acquisitions of Fraser or
Interstate.
SECTION 10.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either PalEx or the Company, as provided in Section 10.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Subsidiary, PalEx or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
7.1, 7.3 and 7.5, all of which shall survive the termination). Nothing in this
Section 10.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 10.3. AMENDMENT. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law.
SECTION 10.4. WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XI
SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The PalEx Common Stock to be acquired by each of the Stockholders pursuant
to this Agreement is being acquired solely for such Stockholder's own account,
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it in connection with a distribution.
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SECTION 11.1. ECONOMIC RISK; SOPHISTICATION. Each of the Stockholders
represents and warrants to PalEx that he or she is an "accredited investor" as
defined in Regulation D promulgated under the 1933 Act (except the Stockholders
listed on SCHEDULE 11.1 who are not "accredited investors" within such
definition, which such Stockholders have been advised by an attorney, financial
advisor or other person experienced in transactions of this type, which advisor
is Raymond James & Associates, Inc.); that he or she is able to bear the
economic risk of an investment in the PalEx Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that he or she
is capable of evaluating the merits and risks of the proposed investment in the
PalEx Common Stock; and that he has had an adequate opportunity to ask questions
and receive answers from the officers of PalEx concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
PalEx, and the plans for the operations of the business of PalEx.
SECTION 11.2. TRANSFER RESTRICTIONS.
(a) Except for transfers to immediate family members who agree to be bound
by the restrictions set forth in this Section 11.2 (or trusts for the benefit of
the Stockholders or family members, the trustees of which so agree), and except
for sales in accordance with Section 7.11, for a period of two (2) years from
the Closing, the Stockholders shall not (a) sell, assign, exchange, transfer,
encumber, pledge, distribute or otherwise dispose of (i) any shares of PalEx
Common Stock received by the Stockholders in the Merger, or (ii) any interest
(including, without limitation, an option to buy or sell) in any such shares of
PalEx Common Stock, in whole or in part, and no such attempted transfer shall be
treated as effective for any purpose; or (b) engage in any transaction, whether
or not with respect to any shares of PalEx Common Stock or any interest therein,
the intent or effect of which is to reduce the risk of owning the shares of
PalEx Common Stock acquired pursuant to Section 2.2 hereof (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions). The certificates evidencing the PalEx Common Stock
delivered to the Stockholders pursuant to Section 2.2 of this Agreement will
bear a legend substantially in the form set forth below and containing such
other information as PalEx may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO_____________, 1999.
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
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(b) Main Street will execute an agreement to restrict the transfer of its
shares of PalEx Common Stock in a manner identical to the restrictions included
in this Article XI.
ARTICLE XII
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
At the Closing, each of the Stockholders shall execute and deliver an
employment and noncompetition agreement substantially in the form of Exhibit 12
and Main Street shall execute a noncompetition agreement with substantially the
same terms.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.1. BROKERS. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for the fee described in SCHEDULE 13.1) or commission in connection with
the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. PalEx represents and warrants
that no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of PalEx or its stockholders (other than underwriting discounts and
commission to be paid in connection with the IPO).
SECTION 13.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to PalEx or Subsidiary, to:
Vance K. Maultsby, Jr.
Chief Executive Officer
3555 Timmons Lane, Suite 610
Houston, Texas 77027
with a copy to:
John Wombwell, Esq.
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
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(b) If to the Company, to:
Ridge Pallets, Inc.
1470 Highway 17 South
Bartow, Florida 33830
Attention: A.E. Holland, Jr.
with a copy to:
William O.E. Henry, Esq.
Holland & Knight
Post Office Box 32092
Lakeland, Florida 33802-2092
92 Lake Wire
Lakeland, Florida 33815
SECTION 13.3. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
SECTION 13.4. MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, except that PalEx
may assign this Agreement to any other wholly-owned subsidiary of PalEx. THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION
AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS
EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 13.5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 13.6. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and except as set forth in
Section 8.1(a), nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
MAIN STREET CAPITAL PALEX, INC.
PARTNERS, L.P.
By: Main Street Advisory Partners, By:/S/ VANCE MAULTSBY
Name: Vance Maultsby
By: Main Street Merchant Partners, Title:Chief Executive Officer
By:/S/ SAM W. HUMPHREYS
Name: Sam W. Humphreys
Title: Managing Director
RIDGE ACQUISITION CORPORATION
By:/S/ VANCE MAULTSBY
Name: Vance Maultsby
Title: Chief Executive Officer
RIDGE PALLETS, INC.
By:/S/ A. E. HOLLAND, JR.
Name: A. E. Holland, Jr.
Title:Chief Executive Officer
STOCKHOLDERS
/S/ A. E. HOLLAND, JR.
A. E. Holland, Jr., Trustee of the
Alfred Elton Holland, Jr. Revocable
Trust, dated September 14, 1994
/S/ DOUGLAS P. MCLAULIN
Douglas P. McLaulin, Jr., Trustee of
the Douglas P. McLaulin, Jr. Revocable
Trust dated December 30, 1994
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/S/ A. H. KING, III
A. H. King, III
/S/ BYRON L. WALKER
Byron L. Walker
/S/ CASEY A. FLETCHER
Casey A. Fletcher
/S/ DANIEL L. HELMICK
Daniel L. Helmick
/S/ HOWE Q. WALLACE
Howe Q. Wallace
/S/ JAMES H. PETERSON
James H. Peterson
/S/ SUSAN C. WALDRON
Susan C. Waldron
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SCHEDULE 2.1
MANNER OF CONVERSION
At the Closing, the Stockholders shall receive the Cash Component (as
defined below) and the Ridge Stock Component (as defined below). For purposes of
the Agreement, the terms Cash Component and Ridge Stock Component shall have the
following meanings:
(a) Cash Component shall mean (i) the cash of approximately $4.5 million
(based upon the actual amount of the accumulated adjustments account)
payable to the Ridge Stockholders from the proceeds of the IPO, and (ii)
assumption of the Adjusted Indebtedness (defined below). The term
Adjusted Indebtedness shall mean the result obtained by subtracting from
the Company's total indebtedness as of the Closing Date indebtedness
incurred and cash expenditures made after April 28, 1996 specifically to
fund capital expenditures after such date.
(b) Ridge Stock Component shall mean the number of shares of PalEx
Common Stock received by the Ridge Stockholders, which shall be
determined by applying the following formula:
RIDGE STOCK REFERENCE VALUE
Ridge Stock Component= 6,000,000 x Sum of Fraser, Ridge and
Interstate Stock Reference
Values
WHERE the Founding Companies Stock Reference Values will be
determined by subtracting from each Founding Company's Enterprise
Value ($36 million for Fraser and Ridge, $4.8 million for
Interstate) each Founding Company's Cash Component.
Each of the Founding Companies shall have the right to reduce their
respective Stock Component calculated above by returning shares of PalEx Common
Stock. The Founding Company shall receive 2.77778 options to purchase PalEx
Common Stock at the IPO price for each share of PalEx Common Stock returned. The
reduction of the Stock Component by a Founding Company shall not affect the
Stock Component of the other Founding Companies which shall be calculated as if
such reduction had not occurred.
A Founding Company shall exercise such right to return stock by written
notice to PalEx no later than three (3) days prior to the printing of the
Preliminary Prospectus in connection with the IPO.
EXHIBIT 10.2
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"Agreement") is made as of the 20th day of December 1996, by and among PalEx,
Inc., a Delaware corporation ("PalEx"), Main Street Capital Partners, L.P., a
Texas limited partnership ("Main Street"), Fraser Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of PalEx ("Subsidiary"),
Fraser Industries, Inc., a Texas corporation (the "Company"), and the individual
stockholders of the Company identified on Schedule A to this Agreement (the
"Stockholders").
WITNESSETH:
WHEREAS, the respective stockholders and Boards of Directors of Subsidiary
and the Company (collectively referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that Subsidiary merge (the "Merger") with and into
the Company ;
WHEREAS, PalEx is entering into other agreements substantially similar to
this Agreement with each of Ridge Pallets, Inc., a Florida corporation
("Ridge"), and Interstate Pallet, Co., a Virginia corporation ("Interstate" and,
together with the Company and Ridge, collectively referred to as the "Founding
Companies"), which agreements provide for the merger of subsidiaries of PalEx
with and into Ridge and Interstate simultaneously with the Merger; and
WHEREAS, the Boards of Directors of PalEx, Subsidiary and the Company have
approved and adopted this Agreement and intend this transaction to qualify as a
tax-free transaction under the provisions of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2), Subsidiary
shall be merged with and into the Company in accordance with the Delaware
General Corporation Law ("DGCL") and the Texas Business Corporation Act and the
separate existence of Subsidiary shall cease. The Company shall be the surviving
party in the Merger and is hereinafter sometimes referred to as the "Surviving
Corporation." The Merger will be effected in a single transaction.
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SECTION 1.2. EFFECTIVE TIME OF MERGER. The Merger shall become effective
(the "Effective Time") at such time as shall be stated in certificates of Merger
(the "Certificates of
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Merger") to be filed with the Secretary of State of the States of Delaware and
Texas. The Constituent Corporations will cause the Certificates of Merger to be
executed and delivered to the Secretary of State of the State of Delaware and
the Secretary of State of the State of Texas on or before the Closing Date (as
defined in Article III).
SECTION 1.3. CERTIFICATE OF INCORPORATION, BY-LAWS, BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION; BOARD OF DIRECTORS AND OFFICERS OF PALEX. At
the Effective Time of the Merger:
(a) An Amended and Restated Certificate of Incorporation with the same
provisions as Subsidiary's Certificate of Incorporation then in effect shall be
filed and shall become the Certificate of Incorporation of the Surviving
Corporation, and subsequent to the Effective Time, such Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation until amended as provided by law;
(b) The By-laws of Subsidiary then in effect shall become the By-laws of
the Surviving Corporation, and subsequent to the Effective Time, such By-laws
shall be the By-laws of the Surviving Corporation until they shall thereafter be
duly amended;
(c) The Boards of Directors of PalEx and the Surviving Corporation shall
consist of the persons identified on SCHEDULE 1.3(C) hereto. The Board of
Directors of PalEx and the Surviving Corporation shall hold office subject to
the laws of the State of Delaware and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(d) The officers of PalEx and the Surviving Corporation shall be the
persons identified on SCHEDULE 1.3(D) hereto, each of such officers to serve
until such officer's successor is duly elected and qualified, subject to the
provisions of the Certificate of Incorporation and By-laws of PalEx and the
Surviving Corporation and the terms of any employment agreement executed by any
such officer.
SECTION 1.4. EFFECT OF MERGER. The identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of the Company shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of Subsidiary shall be merged with and into the Company, as
the Surviving Corporation. At the Effective Time of the Merger, the separate
existence of Subsidiary shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions for shares, all taxes, including those due and owing and
those accrued, and all other choses in action, and all and every other interest
of or belonging to or due to the Company and Subsidiary shall be taken and
deemed to be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and
Subsidiary; and the title to any real estate, or interest therein, whether by
deed or otherwise, under the laws of the state of
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incorporation vested in the Company or Subsidiary, shall not revert or be in any
way impaired by reason of the Merger. Except as otherwise provided in this
Agreement, following the Merger the Surviving Corporation shall be responsible
and liable for all the liabilities and obligations of Subsidiary and PalEx and
any claim existing, or action or proceeding pending, by or against the Company
or Subsidiary may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the Company or Subsidiary shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Subsidiary shall attach to the Surviving Corporation and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
ARTICLE II
CONVERSION OF STOCK
SECTION 2.1. MANNER OF CONVERSION. At the Effective Time, by virtue of the
Merger and without any action on the part of PalEx, Subsidiary, the Company or
any of the Stockholders:
(a) The shares of common stock, par value $1.00 per share, of the Company
(the "Company Stock") that are issued and outstanding immediately prior to the
Effective Time, automatically shall be deemed to represent (i) the right to
receive that number of shares of common stock, par value $.01 per share, of
PalEx ("PalEx Common Stock") set forth in SCHEDULE 2.1 and (ii) the right to
receive the amount of cash set forth in SCHEDULE 2.1. As of the Effective Time,
all shares of Company Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Company Stock shall cease to
have any rights with respect thereto, except the right to receive that number of
shares of PalEx Common Stock and cash to be issued in consideration therefore
upon surrender of such certificate in accordance with Section 2.2.
(b) All shares of Company Stock that are held by the Company as treasury
stock, if any, shall be canceled and retired and no shares of PalEx Common Stock
or other consideration shall be delivered or paid in exchange therefor.
(c) Each share of capital stock of Subsidiary issued and outstanding and
owned by PalEx shall, by virtue of the Merger and without any action on the part
of PalEx, be converted into one share of common stock, $.01 par value, of the
Company, as the Surviving Corporation.
SECTION 2.2. EXCHANGE OF CERTIFICATES FOR CONSIDERATION. At the Closing
(as defined in Article III), the Stockholders shall deliver to PalEx the
original certificates representing the Company Stock, duly endorsed in blank by
the Stockholders or accompanied by blank stock powers. The Stockholders agree
promptly to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Stock. Upon surrender of such certificates, the Stockholders shall be entitled
to receive certificates representing the number
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of shares of PalEx Stock and the amount of cash set forth in SCHEDULE 2.1, which
shall be delivered on the Consummation Date (as defined in Article III).
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
On the date of execution of the underwriting agreement (the "Underwriting
Agreement") relating to the initial public offering of PalEx Stock (the "IPO"),
the parties shall take all actions necessary (i) to effect the Merger
(including, if permitted by applicable state law, the filing with the
appropriate state authorities of the Certificates of Merger which shall become
effective on the Consummation Date (as defined below)) and (ii) to effect the
conversion and delivery of shares referred to in Section 2.2 (hereinafter
referred to as the "Closing"); PROVIDED, HOWEVER, that such actions shall not
include the actual completion of the Merger or the conversion and delivery of
the shares referred to in Article II, which actions shall be taken on the
Consummation Date. The Closing shall take place at a location mutually agreeable
to the Company and PalEx. The date on which the Closing shall occur shall be
referred to as the "Closing Date." On the Consummation Date, the Certificates of
Merger shall be filed with the appropriate state authorities, or if already
filed shall become effective, and all transactions contemplated by this
Agreement shall occur and be deemed to be completed. The Consummation Date shall
be the date on which the closing of the IPO occurs.
During the period from the Closing Date to the Consummation Date, this
Agreement may only be terminated by the parties if the Underwriting Agreement is
terminated pursuant to the terms of such agreement or as otherwise expressly
provided herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and Stockholders represent and warrant to PalEx as follows:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. The Company is qualified to do business and is in good standing
in each jurisdiction in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company (a "Company Material Adverse
Effect"). True, accurate and complete copies of the Company's Certificate of
Incorporation and By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to PalEx.
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SECTION 4.2. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 200,000 shares
of Company Stock and no shares of preferred stock. As of December 20, 1996,
9,900 shares of Company Stock and no shares of preferred stock were issued and
outstanding. All of such issued and outstanding shares are validly issued and
are fully paid, nonassessable and free of preemptive rights. The Stockholders
own beneficially and of record all of the shares of the Company Stock, which
constitutes all of the outstanding shares of capital stock of the Company, and
such Company Stock is owned free and clear of all liens, claims or encumbrances
of any nature. As a result of the Merger, the Stockholders will convey and
transfer to PalEx good and marketable title to the Company Stock owned by them.
(b) Except as set forth on SCHEDULE 4.2 attached hereto, as of the date
hereof there were no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or
obligating the Company to grant, extend or enter into any such agreement or
commitment or obligating any of the Stockholders to convey or transfer any
Company Stock. There are no voting trusts, proxies or other agreements or
understandings to which the Company or any of the Stockholders is a party or is
bound with respect to the voting of any shares of capital stock of the Company.
SECTION 4.3. NO SUBSIDIARIES. The Company has no subsidiaries and, except
as set forth on SCHEDULE 4.3, it does not own any capital stock of any
corporation or any interest in any partnership, joint venture or limited
liability company.
SECTION 4.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been approved by the Board of Directors of the Company and by the
Stockholders, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholders, and, assuming the due authorization, execution and delivery hereof
by PalEx, Subsidiary and Main Street, constitutes a valid and legally binding
agreement of the Company and the Stockholders, enforceable against the Company
and the Stockholders in accordance with its terms, except that such enforcement
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each of the Company
and the Stockholders do not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under,
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or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company under any of the terms, conditions or
provisions of (i) the charter or by-laws of the Company (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to the Company or
any of its properties or assets, or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
the Stockholders is now a party or by which any of the Stockholders or the
Company or any of its properties or assets may be bound or affected. The
consummation by the Company and the Stockholders of the transactions
contemplated hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through (iii) of
the preceding sentence, subject, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining (prior to
the Effective Time) consents required from commercial lenders, lessors or other
third parties. Excluded from the foregoing sentences of this paragraph (b),
insofar as they apply to the terms, conditions or provisions of the items
described in clauses (ii) and (iii) of the first sentence of this paragraph (b),
are such violations, conflicts, breaches, defaults, terminations, accelerations
or creations of liens, security interests, charges or encumbrances that would
not, in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(c) Except as disclosed in Schedule 4.4 and for (i) the filing in
connection with the IPO of a registration statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission ("SEC")
pursuant to the Securities Act of 1933 (the "1933 Act"), (ii) the declaration of
the effectiveness thereof by the SEC and filings with various state blue sky
authorities, and (iii) the making of the Merger Filings with the Secretary of
State of the State of Delaware and Texas in connection with the Merger, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholders or the consummation by the Company and the Stockholders of the
transactions contemplated hereby.
SECTION 4.5. FINANCIAL STATEMENTS. The audited financial statements for
the fiscal year ended August 31, 1996 and unaudited interim financial statements
of the Company for the three months ended November 30, 1996 (collectively, the
"Company Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly present the financial
position of the Company as of the dates thereof and the results of its
operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
SECTION 4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
SCHEDULE 4.6 attached hereto, the Company did not have at November 30, 1996, nor
has it incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature,
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except (a) liabilities, obligations or contingencies (i) which are accrued or
reserved against in the Company Financial Statements or reflected in the notes
thereto or (ii) which were incurred after November 30, 1996 and were incurred in
the ordinary course of business and consistent with past practices, and (b)
liabilities and obligations which are of a nature not required to be reflected
in the Company Financial Statements prepared in accordance with generally
accepted accounting principles consistently applied and which were incurred in
the normal course of business and are described on SCHEDULE 4.6. SCHEDULE 4.6
includes a reasonable estimate by the Company and the Stockholders of the
maximum amount which may become payable with respect to any such liabilities
which are contingent.
SECTION 4.7. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 4.7 sets forth an
accurate list of the accounts and notes receivable of the Company as of October
31, 1996, including any such amounts which are not reflected in the Company's
balance sheet at such date. Receivables from and advances to employees, the
Stockholders and any entities or persons related to or affiliated with the
Stockholders are separately identified on SCHEDULE 4.7. SCHEDULE 4.7 also sets
forth an accurate aging of all accounts and notes receivable as of November 30,
1996 showing amounts due in 30-day aging categories. The trade and other
accounts receivable of the Company which are classified as current assets on the
November 30, 1996 balance sheet are bona fide receivables, were acquired in the
ordinary course of business, are stated in accordance with generally accepted
accounting principles and, subject to the reserve for doubtful accounts, need
not be written-off as uncollectible.
SECTION 4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since August 31, 1996,
there has not been any material adverse change in the business, operations,
properties, assets, liabilities, condition (financial or other), results of
operations or prospects of the Company, nor, except as disclosed in SCHEDULE 4.8
has there been:
(i) any damage, destruction or loss (whether or not covered by
insurance) alone or in the aggregate, materially adversely affecting
the properties or business of the Company;
(ii) any change in the authorized capital stock of the Company or in its
securities outstanding or any change in the Stockholders' ownership
interests or any grant of any options, warrants, calls, conversion
rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the
Company;
(iv) any increase in the compensation payable or to become payable by the
Company to the Stockholders or any of its officers, directors,
employees, consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance with past
practice;
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(v) any work interruptions, labor grievances or claims filed, or any
proposed law, regulation or event or condition of any character
materially adversely affecting the business or future prospects of
the Company;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, the Stockholders and their
affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or other
obligation owing to the Company;
(viii)any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business;
(ix) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets outside of the
ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party or any of its property is subject; or
(xiii)any transaction by the Company outside the ordinary course of
business.
SECTION 4.9. LITIGATION. Except as disclosed in the SCHEDULE 4.9 attached
hereto, there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Company or any of the Stockholders, threatened against,
relating to or affecting the Company or any of the Stockholders, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain the consummation of the
Merger or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a Company Material Adverse
Effect. Except as disclosed in SCHEDULE 4.9 attached hereto, neither the Company
nor any of the Stockholders is not subject to any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator which prohibits or restricts the
consummation of the transactions contemplated hereby or would have a Company
Material Adverse Effect.
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SECTION 4.10. REGISTRATION STATEMENT. To the best of the Company's and
Stockholders' knowledge and belief, none of the information to be supplied by
the Company for inclusion in the Registration Statement will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 4.11. NO VIOLATION OF LAW. To the best of the Company's and
Stockholders' knowledge and belief, except as disclosed in SCHEDULE 4.11
attached hereto, the Company is not in violation of nor has it been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in SCHEDULE 4.11 attached hereto, as of the date of this Agreement, no
investigation or review by any governmental or regulatory body or authority is
pending or, to the knowledge of the Company, threatened, nor has any
governmental or regulatory body or authority indicated an intention to conduct
the same, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen, will not have a Company Material Adverse Effect. The
Company has all permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals necessary to conduct
their businesses as presently conducted (collectively, the "Company Permits"),
except for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a Company Material Adverse Effect. The Company is not
in violation of the terms of any Company Permit, except for delays in filing
reports or violations which, alone or in the aggregate, would not have a Company
Material Adverse Effect.
SECTION 4.12. COMPLIANCE WITH AGREEMENTS. Except as disclosed in SCHEDULE
4.12 attached hereto, the Company is not in breach or violation of or in default
in the performance or observance of any term or provision of, and no event has
occurred which, with lapse the of time or action by a third party, could result
in a default under, (a) the charter, by-laws or similar organizational
instruments of the Company or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which the Company is a party or by which it is bound or to
which any of its property is subject, which breaches, violations and defaults,
in the case of clause (b) of this Section 4.12, would have, in the aggregate, a
Company Material Adverse Effect.
SECTION 4.13. TAXES.
(a) The Company has (i) duly filed with the appropriate governmental
authorities or will file when due all Tax Returns required to be filed for all
periods ending on or prior to the Effective Time, other than those Tax Returns
the failure of which to file would not have a Company Material Adverse Effect
and such Tax Returns are true, correct and complete in all material respects,
and (ii) duly paid in full or made adequate provision for the payment of all
Taxes for all periods ending at or prior to the Effective Time. The liabilities
and reserves for Taxes reflected in the Company
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Financial Statements are adequate to cover all Taxes for all periods ending at
or prior to the Effective Time and there are no material liens for Taxes upon
any property or asset of the Company thereof, except for liens for Taxes not yet
due. There are no unresolved issues of law or fact arising out of a notice of
deficiency, proposed deficiency or assessment from the IRS or any other
governmental taxing authority with respect to Taxes of the Company which, if
decided adversely, singly or in the aggregate, would have a Company Material
Adverse Effect. The Company is not a party to any agreement providing for the
allocation or sharing of Taxes with any entity that is not, directly or
indirectly, a wholly-owned corporate subsidiary of Company. Neither the Company
nor any of its corporate subsidiaries has, with regard to any assets or property
held, acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code. The Company made a valid election
under Section 1362(a) of the Code, effective December 1, 1988 to be taxed as an
S corporation under the Code. As of immediately prior to the Closing, the
Company qualifies as an S corporation within the meaning of Subchapter S of the
Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
including, without limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and such term shall include any interest, fines, penalties or additional
amounts and any interest in respect of any additions, fines or penalties
attributable or imposed or with respect to any such taxes, charges, fees, levies
or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with any Taxes.
SECTION 4.14. EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in SCHEDULE 4.14 attached hereto, at the date
hereof, the Company does not maintain or contribute to any material employee
benefit plans, programs, arrangements and practices (such plans, programs,
arrangements and practices of the Company being referred to as the "COMPANY
PLANS"), including employee benefit plans within the meaning set forth in
Section 3(3) of ERISA, or other similar material arrangements for the provision
of benefits (excluding any "MULTI-EMPLOYER PLAN" within the meaning of Section
3(37) of ERISA or a "MULTIPLE EMPLOYER PLAN" within the meaning of Section
413(c) of the Code). SCHEDULE 4.14(A) attached hereto lists all Multi-employer
Plans and Multiple Employer Plans which the Company maintains or to which it
makes contributions. The Company does not have any obligation to create any
additional such plan or to amend any such plan so as to increase benefits
thereunder, except as required under the terms of the Company Plans, under
existing collective bargaining agreements or to comply with applicable law.
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(b) Except as disclosed in SCHEDULE 4.14 attached hereto, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Company Plans that
could result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Company Material Adverse Effect, (ii) except for
premiums due, there is no outstanding material liability, whether measured alone
or in the aggregate, under Title IV of ERISA with respect to any of the Company
Plans, (iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Company Plans
subject to Title IV of ERISA other than in a "STANDARD TERMINATION" described in
Section 4041(b) of ERISA, (iv) none of the Company Plans has incurred any
"ACCUMULATED FUNDING DEFICIENCY" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Company Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit obligations
under each of the Company Plans which is subject to Title IV of ERISA did not,
as of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities, based upon reasonable actuarial
assumptions currently utilized for such Company Plan, (vi) each of the Company
Plans has been operated and administered in all material respects in accordance
with applicable laws during the period of time covered by the applicable statute
of limitations, (vii) each of the Company Plans which is intended to be
"QUALIFIED" within the meaning of Section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified and such determination has
not been modified, revoked or limited by failure to satisfy any condition
thereof or by a subsequent amendment thereto or a failure to amend, except that
it may be necessary to make additional amendments retroactively to maintain the
"QUALIFIED" status of such Company Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to
Multi-employer Plans, the Company has not made or suffered a "COMPLETE
WITHDRAWAL" or a "PARTIAL WITHDRAWAL," as such terms are respectively defined in
Sections 4203, 4204 and 4205 of ERISA and, to the best knowledge of the Company,
no event has occurred or is expected to occur which presents a material risk of
a complete or partial withdrawal under said Sections 4203, 4204 and 4205, (ix)
to the best knowledge of the Company, there are no material pending, threatened
or anticipated claims involving any of the Company Plans other than claims for
benefits in the ordinary course, and (x) the Company has no current material
liability, whether measured alone or in the aggregate, for plan termination or
complete withdrawal or partial withdrawal under Title IV of ERISA based on any
plan to which any entity that would be deemed one employer with the Company
under Section 4001 of ERISA or Section 414 of the Code contributed during the
period of time covered by the applicable statute of limitations (the "COMPANY
CONTROLLED GROUP PLANS"), and the Company does not reasonably anticipate that
any such liability will be asserted against the Company . None of the Company
Controlled Group Plans has an "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 302 of ERISA and 412 of the Code).
(c) SCHEDULE 4.14 attached hereto contains a true and complete summary or
list of or otherwise describes all employment contracts and employee benefit
arrangements with all employees of the Company.
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SECTION 4.15. LABOR MATTERS. Except as set forth in SCHEDULE 4.15 attached
hereto, (a) there are no significant controversies pending or, to the knowledge
of the Company, threatened between the Company and any of its employees, (b)
none of the Company's employees is represented by a labor union or covered by a
collective bargaining agreement, and to the knowledge of the Company, there are
no organizational efforts and no campaign is under way to establish such
representation or coverage, (c) the Company has, to the knowledge of the
Company, complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (d) no person has, to the knowledge of the
Company, asserted that the Company is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing, except for such controversies, organizational efforts, non-compliance
and liabilities which, singly or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect.
SECTION 4.16. ENVIRONMENTAL MATTERS.
(a) To the best of the Company's and Stockholders' knowledge and belief,
except as set forth in SCHEDULE 4.16 attached hereto, (i) the Company has
conducted its businesses in compliance with all applicable Environmental Laws,
including, without limitation, having all permits, licenses and other approvals
and authorizations necessary for the operation of their respective businesses as
presently conducted, (ii) none of the properties owned by the Company contain
any Hazardous Substance as a result of any activity of the Company in amounts
exceeding the levels permitted by applicable Environmental Laws, (iii) the
Company has not received any notices, demand letters or requests for information
from any Federal, state, local or foreign governmental entity or third party
indicating that the Company may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of its business,
(iv) there are no civil, criminal or administrative actions, suits, demands,
claims, hearings, investigations or proceedings pending or threatened, against
the Company relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law, (vi) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the Company as a
result of any activity of the Company during the time such properties were
owned, leased or operated by the Company, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other analysis regarding
compliance or non-compliance with any applicable Environmental Law conducted by
or which are in the possession of the Company relating to the activities of the
Company which are not listed on SCHEDULE 4.16 attached hereto prior to the date
hereof, (viii) there are no underground storage tanks on, in or under any
properties owned by the Company and no underground storage tanks have been
closed or removed from any of such properties during the time such properties
were owned, leased or operated by the Company, (ix) there is no asbestos or
asbestos containing material present in any of the properties owned by the
Company, and no asbestos has been removed from any of such properties during the
time such properties were owned, leased or operated by the Company, and (x)
neither the Company nor any
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of its respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (x) that, singly or in the aggregate, would not reasonably
be expected to have a Company Material Adverse Effect.
(b) As used herein, "ENVIRONMENTAL LAW" means any Federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity relating to
(x) the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety or (y) the exposure to, or the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on the Closing Date. The term
Environmental Law includes, without limitation, (i) the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "HAZARDOUS SUBSTANCE" means any substance presently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
SECTION 4.17. TITLE TO ASSETS. The Company has good and marketable title
in fee simple to all its real property and good title to all its leasehold
interests and other properties, as reflected in the most recent balance sheet
included in the Company Financial Statements, except for the assets which are to
be sold or dividended to the Stockholders pursuant to Section 6.4 and properties
and assets that have been disposed of in the ordinary course of business since
the date of such balance sheet, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever, except (i) the lien for
current taxes, payments of which are not yet delinquent, (ii) such imperfections
in title and easements and encumbrances, if any, as are not substantial in
character,
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amount or extent and do not materially detract from the value, or interfere with
the present use of the property subject thereto or affected thereby, or
otherwise materially impair the Company's business operations (in the manner
presently carried on by the Company), and (iii) except for such matters which,
singly or in the aggregate, could not reasonably be expected to have a Company
Material Adverse Effect. All leases under which the Company leases any
substantial amount of real or personal property have been delivered to PalEx and
are in good standing, valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing default or event
which with notice or lapse of time or both would become a default other than
defaults under such leases which in the aggregate will not cause a Company
Material Adverse Effect
SECTION 4.18. INSURANCE. SCHEDULE 4.18 sets forth an accurate list as of
September 30, 1996 of all insurance policies carried by the Company and of all
insurance claims or losses in excess of $50,000 or material workmen's
compensation claims received for the past five (5) policy years. The losses and
claims not listed in SCHEDULE 4.18 will not, in the aggregate, result in a
Company Material Adverse Effect. Also attached to SCHEDULE 4.18 are true,
complete and correct copies of all of the Company's insurance policies, covering
at least the past three years. None of such policies is a "claims made" policy.
The insurance policies set forth on SCHEDULE 4.18 provide adequate coverage
against the risks involved in the Company's business. Such policies are
currently in full force and effect.
SECTION 4.19. INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED-PARTY
TRANSACTIONS. Except as described on SCHEDULE 4.19, no Stockholder, officer,
director or affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is a
party to an agreement or relationship, that involves the receipt by such person
of compensation or property from the Company other than through a customary
employment relationship.
SECTION 4.20. BUSINESS RELATIONS. SCHEDULE 4.20 contains an accurate list
of all customers of the Company representing five percent (5%) or more of the
Company's revenues for the twelve (12) months ended August 31, 1996 and the
three (3) months ended November 30, 1996. Except as set forth on SCHEDULE 4.20,
since August 31, 1995, none of the Company's significant customers has canceled
or substantially reduced its purchases from the Company, nor are any of such
customers threatening to do so. Except as set forth on SCHEDULE 4.20, since
August 31, 1995, the Company has not experienced any difficulties in obtaining
any inventory items necessary to the operation of its business, and, to the
knowledge of the Company and the Stockholders, no such shortage of supply of
inventory items is threatened or pending. To the knowledge of the Company and
the Stockholders, no customer or supplier of the Company will cease to do
business with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby, which cessation or
reduction would reasonably be expected to have a Company Material Adverse
Effect. The Company is not required to provide any bonding or other financial
security arrangements in any material amount in connection with any transactions
with any of its customers or suppliers.
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SECTION 4.21. DISCLOSURE. The Stockholders have fully provided PalEx with
all the information that PalEx has requested in analyzing whether to consummate
the Merger. To the best of the Company's and Stockholders' knowledge and belief,
none of the information so provided nor any representation or warranty of the
Stockholders contained in this Agreement contains any untrue statement regarding
a material fact or omits to state a material fact necessary in order to make the
statements made herein or in the information provided, in light of the
circumstances under which they were made, not misleading.
SECTION 4.22. TRADEMARKS AND INTELLECTUAL PROPERTY COMPLIANCE. Company
owns or has the right to use, without any material payment to any other party,
all of its patents, trademarks (registered or unregistered), trade names,
service marks, copyrights and applications ("Intellectual Property Rights") and
the consummation of the transactions contemplated hereby will not alter or
impair such rights in any material respect. To the best of the Company's and
Stockholders' knowledge and belief, no claims are pending by any person with
respect to the ownership, validity, enforceability or use of any such
Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing which claims could reasonably be expected
to have a Company Material Adverse Effect.
SECTION 4.23. NO IMPLIED REPRESENTATIONS. Notwithstanding anything
contained in this Article or any other provision of this Agreement or any of the
related documents, it is the explicit understanding of each party hereto that
the Company and the Stockholders are not making any representation or warranty
whatsoever, express or implied, other than those representations and warranties
of the Company and the Stockholders in this Agreement and the related documents.
It is understood that any estimates, projections or other predictions which
otherwise have been provided to PalEx are not and shall not be deemed to be
representations or warranties of the Company or the Stockholders, but as the
good faith estimates and assumptions of the Company and the Stockholders
intended to be reasonable at the time made concerning the most likely course of
the Company and its businesses. The Company, the Stockholders and PalEx
acknowledge that there are uncertainties inherent in attempting to make such
estimates, projections and other predictions, that the Company, the Stockholders
and PalEx are familiar with such uncertainties, that the Company, the
Stockholders and PalEx are taking full responsibility for making their own
evaluation of the adequacy and accuracy of all estimates, projections and other
predictions so furnished to them, and that neither PalEx, the Stockholders nor
any of the Founding Companies shall have any claim against anyone with respect
thereto.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND SUBSIDIARY
PalEx and Subsidiary represent and warrant to the Company as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION.
(a) PalEx is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. True, accurate and complete copies of
each of PalEx's Certificate of Incorporation and By-laws, as in effect on the
date hereof, including all amendments thereto, have heretofore been delivered to
the Company.
(b) Subsidiary is a corporation duly organized, validly existing and good
standing under the laws of the State of Delaware and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of
Subsidiary. True, accurate and complete copies of each of Subsidiary's
Certificate of Incorporation and By-laws, as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the Company.
SECTION 5.2. CAPITALIZATION.
(a) The authorized capital stock of PalEx consists of (i) 30,000,000
shares of PalEx Common Stock, of which 1,071,389 shares were outstanding as of
December 20, 1996, and (ii) 5,000,000 shares of preferred stock, par value $.01
per share, none of which was issued and outstanding as of December 20, 1996. All
of the issued and outstanding shares of PalEx Common Stock are validly issued
and are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth on SCHEDULE 5.2 attached hereto, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating PalEx to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital stock of
PalEx or obligating PalEx to grant, extend or enter into any such agreement or
commitment, except that PalEx declared a stock split prior to executing this
Agreement which resulted in Main Street owning 1,021,389 shares and Vance K.
Maultsby, Jr. owning 50,000 shares of PalEx Common Stock. There are no
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voting trusts, proxies or other agreements or understandings to which PalEx is a
party or is bound with respect to the voting of any shares of capital stock of
PalEx. The shares of PalEx Common Stock issued to stockholders of the Company in
the Merger will be at the Effective Time duly authorized, validly issued, fully
paid and nonassessable and free of preemptive rights.
SECTION 5.3. NO SUBSIDIARIES. Except as set forth on SCHEDULE 5.3, PalEx
has no subsidiaries and it does not own any capital stock of any corporation or
any interest in any partnership, joint venture or limited liability company.
SECTION 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) PalEx and Subsidiary have full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors and stockholders of PalEx
and Subsidiary, and no other corporate proceedings on the part of PalEx and
Subsidiary are necessary to authorize the execution and delivery of this
Agreement or the consummation by PalEx and Subsidiary of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
PalEx and Subsidiary, and, assuming the due authorization, execution and
delivery hereof by the Company and the Stockholders, constitutes a valid and
legally binding agreement of PalEx and Subsidiary enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by PalEx and Subsidiary
does not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the respective properties or assets of PalEx
and Subsidiary under any of the terms, conditions or provisions of (i) the
charter or by-laws of PalEx or Subsidiary, as applicable, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to PalEx or
Subsidiary or any of their respective properties or assets or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which PalEx or Subsidiary is now a party or by which PalEx or Subsidiary
or any of their respective properties or assets may be bound or affected. The
consummation by PalEx and Subsidiary of the transactions contemplated hereby
will not result in any violation, conflict, breach, right of termination or
acceleration or creation of liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the preceding
sentence, subject, in the case of the terms, conditions or provisions of the
items described in clause (ii) above, to obtaining (prior to the Effective Time)
PalEx Required Statutory Approvals (as defined in Section 5.4(c)) and, in the
case of the terms, conditions or provisions of the items described in clause
(iii) above, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties.
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Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions of the items described in clauses
(ii) and (iii) of the first sentence of this paragraph (b), are such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of PalEx or Subsidiary (a "PalEx Material Adverse Effect").
(c) Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, (ii) the declaration of the effectiveness thereof by
the SEC and filings with various state blue sky authorities, and (iii) the
making of the Merger Filing with the Secretary of State of the State of Delaware
and Texas in connection with the Merger, the filings and approvals referred to
in clauses (i) through (iii) are collectively referred to as the "PALEX REQUIRED
STATUTORY APPROVALS", no declaration, filing or registration with, or notice to,
or authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by PalEx
or Subsidiary or the consummation by PalEx or Subsidiary of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not, in the aggregate, have a PalEx Material Adverse
Effect.
SECTION 5.5. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed to
the Company in writing, neither PalEx nor Subsidiary have incurred any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except those incurred in connection with the Merger, this
Agreement, the agreements with the other Founding Companies and the IPO. Except
as contemplated by the foregoing, PalEx and Subsidiary have not engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
SECTION 5.6. LITIGATION. There are no claims, suits, actions or
proceedings pending or, to the knowledge of PalEx or Subsidiary, threatened
against, relating to or affecting PalEx or Subsidiary, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
the IPO or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a PalEx Material Adverse
Effect.
SECTION 5.7. NO VIOLATION OF LAW. PalEx is not in violation of, nor has it
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority.
SECTION 5.8. AFFILIATE TRANSACTIONS. Except for the ownership by Main
Street of shares of PalEx Common Stock and Main Street's obligations and rights
under Section 7.3, no transaction has occurred and no transaction is now
proposed to which PalEx is or will be a party, in which any current affiliate of
Main Street has a direct or indirect material interest.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as otherwise contemplated by this Agreement, after the date hereof and prior to
the Closing Date or earlier termination of this Agreement, unless PalEx shall
otherwise agree in writing, the Company shall:
(a) conduct its businesses in the ordinary and usual course and consistent
with past practice;
(b) not (i) amend or propose to amend its charter or by-laws, (ii) split,
combine or reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property or
otherwise, except for the payment of dividends or distributions described in
SCHEDULE 6.1;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of, any additional shares of, or any options, warrants or rights of
any kind to acquire any shares of, its capital stock of any class or any debt or
equity securities convertible into or exchangeable for such capital stock.
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or (B) borrowings to refinance existing indebtedness on terms
comparable with or better than those at the date hereof, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or any
options, warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) take or fail to
take any action which action or failure would cause the Company or the
Stockholders (except to the extent of any cash received in the Merger) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (iv) sell, pledge, dispose of or encumber any assets
or businesses other than sales in the ordinary course of business or (v) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
customers and others having business relationships with it and not engage in any
action, directly or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of PalEx to report operational matters of materiality and the
general status of ongoing operations;
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(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law or in the ordinary course of
business and consistent with past practices; and
(i) maintain with financially responsible insurance companies insurance on
its tangible assets and its businesses in such amounts and against such risks
and losses as are consistent with past practice.
SECTION 6.2. CONTROL OF THE COMPANY'S OPERATIONS. Nothing contained in
this Agreement shall give to PalEx, directly or indirectly, rights to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.3. NO - SHOP.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company and the Stockholders shall not, and
the Company shall use its best efforts to cause any officer, director or
employee of, or any attorney, accountant, investment banker, financial advisor
or other agent retained by it not to, initiate, solicit, negotiate, encourage or
provide non-public or confidential information to facilitate, any proposal or
offer to acquire all or any substantial part of the business and properties of
the Company or any capital stock of the Company, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other consideration or
combination thereof, or enter into any joint venture or partnership or similar
arrangement.
(b) The Company and the Stockholders (i) acknowledge that a breach of any
of their covenants contained in this Section 6.3 will result in irreparable harm
to PalEx which will not be compensable in money damages; and (ii) agree that
such covenant shall be specifically enforceable and that specific performance
and injunctive relief shall be a remedy properly available to the other party
for a breach of such covenant.
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SECTION 6.4. DIVIDEND OR SALE OF NONPRODUCTIVE ASSETS. The Company shall,
prior to the Closing Date, either dividend to the Stockholders or sell for cash
the assets listed on SCHEDULE 6.4. If the Company sells such assets, it shall
apply the proceeds from such sale to the reduction of outstanding debt. Any such
dividend shall not affect the total consideration due the Stockholders
hereunder; any such sale and reduction of the Company's debt shall affect the
allocation of the consideration to be received by the Stockholders in the Merger
in the manner described in Schedule 2.1.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS TO INFORMATION.
(a) The Company shall afford to PalEx and Subsidiary and their
accountants, counsel, financial advisors and other representatives (the "PALEX
REPRESENTATIVES") and PalEx and Subsidiary shall afford to the Company and its
accountants, counsel, financial advisors and other representatives (the "COMPANY
REPRESENTATIVES") full access during normal business hours throughout the period
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly to
one another all due diligence information requested by the other party. PalEx
and Subsidiary shall hold and shall use their reasonable best efforts to cause
the PalEx Representatives to hold, and the Company shall hold and shall use its
reasonable best efforts to cause the Company Representatives to hold, in strict
confidence all non-public information furnished to it in connection with the
transactions contemplated by this Agreement, except that each of PalEx,
Subsidiary and the Company may disclose any information that it is required by
law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with its
terms, each party shall promptly redeliver to the other all non-public written
material provided pursuant to this Section 7.1 and shall not retain any copies,
extracts or other reproductions of such written material. In the event of such
termination, all documents, memoranda, notes and other writings prepared by
PalEx and Subsidiary or the Company based on the information in such material
shall be destroyed (and PalEx , Subsidiary and the Company shall use their
respective reasonable best efforts to cause their advisors and representatives
to similarly destroy their documents, memoranda and notes), and such destruction
(and reasonable best efforts) shall be certified in writing by an authorized
officer supervising such destruction.
(c) The Company shall promptly advise PalEx in writing of any change or
the occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, any Company
Material Adverse Effect.
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SECTION 7.2. REGISTRATION STATEMENT. PalEx and the Founding Companies
shall file with the SEC as soon as is reasonably practicable after the date
hereof the Registration Statement and shall use all reasonable efforts to have
the Registration Statement declared effective by the SEC as promptly as
practicable. PalEx shall also take any action required to be taken under
applicable state blue sky or securities laws in connection with the issuance of
PalEx Common Stock. PalEx and the Company shall promptly furnish to each other
all information, and take such other actions, as may reasonably be requested in
connection with making such filings. The information provided and to be provided
by PalEx and the Company, respectively, for use in the Registration Statement
shall be true and correct in all material respects without omission of any
material fact which is required to make such information not false or misleading
as of the date thereof and in light of the circumstances under which given or
made.
SECTION 7.3. EXPENSES AND FEES. Main Street shall pay the fees and
expenses of the independent public accountants and legal counsel to PalEx and
all filing, printing and other reasonable, documented fees and expenses
associated with the IPO up to $1,250,000. PalEx shall pay or reimburse Main
Street from the proceeds of the IPO for such fees and expenses in excess of
$1,250,000. Neither the Company nor the Stockholders will be liable for any
portion of the above expenses in the event the IPO is not closed. PalEx shall
also pay (i) the underwriting discounts and commissions payable in connection
with the sale of PalEx Common Stock in the IPO, (ii) the fees payable to Raymond
James & Associates and Mr. Tucker Bridwell, as detailed on SCHEDULE 7.3 and
(iii) the fees and expenses incurred in delivering the tax opinion set forth in
Section 9.2(d). All other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
SECTION 7.4. AGREEMENT TO COOPERATE. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 7.5. PUBLIC STATEMENTS. Except as may require by law, no party
hereto shall issue any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby without the
prior written consent of PalEx and the Company.
SECTION 7.6. NOTIFICATION OF CERTAIN MATTERS. Each of the Company, the
Stockholders and PalEx agrees to give prompt notice to each of the others of,
and to use their respective reasonable best efforts to prevent or promptly
remedy, (i) the occurrence or failure to occur or the impending or threatened
occurrence or failure to occur, of any event which occurrence or failure to
occur would be likely to cause any of its representations or warranties in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time, or any of the information supplied by it
for use in the Registration Statement to be untrue in any material respect or to
omit any material fact, at any time from the date hereof until 25 days following
the Closing, and (ii) any material failure on its part to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; PROVIDED, HOWEVER, that the
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delivery of any notice pursuant to this Section 7.6 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
SECTION 7.7. DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) After the Effective Time, PalEx shall, to the fullest extent permitted
under applicable law, indemnify and hold harmless, each present and former
director, officer and agent of the Company (each, together with such person's
heirs, executors or administrators, an "INDEMNIFIED PARTY" and collectively, the
"INDEMNIFIED PARTIES") against any costs or expenses (including reasonable
attorneys fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of, relating to or in connection with any action or
omission of PalEx occurring prior to the Effective Time (including, without
limitation, acts or omissions in connection with such persons serving as an
officer, director or other fiduciary in any entity if such service was at the
request or for the benefit of the Company). In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) PalEx shall pay the reasonable fees and expenses of counsel
selected by the indemnified parties, which counsel shall be reasonably
satisfactory to PalEx, promptly after statements therefor are received, (ii)
PalEx will cooperate in the defense of any such matter, and (iii) any
determination required to be made with respect to whether an indemnified party's
conduct complies with the standards set forth under the DGCL or other applicable
statutes and PalEx's or the Surviving Corporation's respective Certificates of
Incorporation or By-Laws shall be made by independent legal counsel acceptable
to PalEx as the case may be, and the indemnified party; PROVIDED, HOWEVER, that
PalEx shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld).
(b) In the event that PalEx or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in each such case, proper provisions shall be made so that the
successors and assigns of PalEx shall assume the obligations set forth in this
Section 7.7.
SECTION 7.8. CORRECTIONS TO THE REGISTRATION STATEMENT. Prior to the
effectiveness of the IPO, and until the expiration of the 25th day thereafter,
each of the Company, the Stockholders and PalEx shall correct promptly any
information provided by it to be used specifically in the Registration Statement
that shall have become false or misleading in any material respect and shall
take all steps necessary to file with the SEC and have declared effective or
cleared by the SEC any amendment or supplement to the Registration Statement so
as to correct the same and to cause the Prospectus included within such
Registration Statement as so corrected to be disseminated to the extent required
by applicable law.
SECTION 7.9. PREPARATION AND FILING OF TAX RETURNS.
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(a) Each party hereto shall, and shall cause its affiliates to, provide to
each of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in conducting
any audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies at no cost to the requesting party of
all relevant portions of relevant returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by taxing authorities and relevant records concerning the
ownership and tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file returns pursuant
to this Agreement shall bear all costs of filing such returns.
(b) Each of the Company, PalEx and the Stockholders shall comply with the
tax reporting requirements of Section 1.368-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as a tax-free
reorganization under Section 368(a) of the Code unless otherwise required by
law. The parties have independently determined and hereby agree that the
transaction constitutes a tax-free reorganization under Section 368(a) of the
Code and specifically that:
(i) Neither the Company nor PalEx is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(ii) The fair market value of the assets of the Company
exceeds the sum of its liabilities, plus the amount of liabilities, if any, to
which the assets are subject.
(iii) The Company is not under jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(iv) The fair market value of the PalEx Common Stock and other
consideration received by the Stockholders, will be approximately equal to the
fair market value of the Company Stock surrendered in the Merger.
(v) There is no intercorporate indebtedness existing between
PalEx and the Company that was issued, acquired, or will be settled at a
discount.
(vi) None of the compensation received by any
Stockholder-employee of the Company after the Merger will be separate
consideration for, or allocable to, any of their securities of the Company. None
of the shares of PalEx Common Stock received by the Stockholders in the Merger
will be separate consideration for, or allocable to, any employment agreement;
and the compensation paid to the Stockholders in their capacity as employees
including, but not limited to, amounts paid pursuant to the employment
agreements between the Company and the Stockholders and incentive compensation
in the form of stock options, will be for services
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actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's- length for similar services.
(vii) The proposed Merger is effected through the laws of the
United States, a State thereof or the District of Columbia.
(viii)The proposed Merger is being undertaken for reasons
germane to the business of the Company.
SECTION 7.10. COVENANTS CONCERNING TAXES.
(a) (i) The Stockholders shall pay (and shall indemnify, defend and hold
harmless PalEx, as the Surviving Corporation, from and against liability with
respect to) any and all Taxes, interest, penalties and additions to Taxes that
are imposed on them or the Company: (i) attributable to the taxable income of
the Company for all taxable periods during which the Company was an S
corporation (the "S Corporation Period"); and (ii) as a result of the Company's
S election being treated as invalid or ineffective for any reason or such
election being revoked or terminated prior to the Merger.
(ii) The Surviving Corporation, shall pay or cause to be paid
(and shall indemnify, defend and hold harmless the Stockholders from and against
liability with respect to) any and all Taxes, interest, penalties and additions
to Taxes attributable to the taxable income of the Surviving Corporation for the
period after the Merger (the "C Corporation Period").
(b) If the Stockholders receive notice of an intention by a taxing
authority to audit any return of the Stockholders that includes any item of
income, gain, deduction, loss or credit reported by the Company with respect to
the S Corporation Period that the Stockholders have reason to believe may affect
the Surviving Corporation's tax returns during the C Corporation Period, the
Stockholders shall inform the Surviving Corporation, in writing, of the audit
promptly after receipt of such notice. If the Stockholders receive notice from a
taxing authority of any proposed adjustment for which the Surviving Corporation
may be required to indemnify hereunder (a "Proposed Adjustment"), the
Stockholders shall give notice to the Surviving Corporation of the Proposed
Adjustment promptly after receipt of such notice from a taxing authority. Within
twenty (20) days following its receipt of such notice, the Surviving Corporation
shall give notice to the Stockholders of its determination as to whether it
desires the Stockholders to contest such Proposed Adjustment. Upon such request
the Stockholders, at their option and upon written notice to the Surviving
Corporation within ten (10) days after their receipt of the notice described in
the preceding sentence, shall (i) contest the Proposed Adjustment at the
Surviving Corporation's expense and permit the Surviving Corporation to
participate in (but not to control) such proceedings, or (ii) permit the
Surviving Corporation to contest the Proposed Adjustment (including pursuing all
administrative and judicial appeals and demands). The Surviving Corporation
shall pay to the Stockholders on demand all reasonable costs and expenses
(including reasonable attorneys' and accountants' fees) that the Stockholders
may incur in contesting such Proposed Adjustments. The Stockholders shall
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not make, accept or enter into a settlement or other compromise, with respect to
any Taxes indemnified hereunder, or forego or terminate any proceeding
undertaken hereunder without the consent of the Surviving Corporation, which
consent shall not be unreasonably withheld. The Stockholders will reasonably
assist if the Surviving Corporation contests any Proposed Adjustment.
(c) If the Surviving Corporation receives notice of an intention by a
taxing authority to audit any return of the Surviving Corporation that includes
any item of income, gain, deduction, loss or credit reported by the Surviving
Corporation with respect to the C Corporation Period that the Surviving
Corporation has reason to believe may affect the Stockholders' tax returns
during the S Corporation Period, the Surviving Corporation shall inform the
Stockholders in writing, of the audit promptly after receipt of such notice. If
the Surviving Corporation receives notice from a taxing authority of any
proposed adjustment for which the Stockholders may be required to indemnify the
Surviving Corporation hereunder (a "Surviving Corporation Proposed Adjustment"),
the Surviving Corporation shall give notice to the Stockholders of the Surviving
Corporation Proposed Adjustment promptly after receipt of such notice from a
taxing authority. Upon receipt of such notice from the Surviving Corporation,
the Stockholders may, by in turn giving prompt written notice to the Surviving
Corporation, request that the Surviving Corporation contest such Surviving
Corporation Proposed Adjustment. If the Stockholders request that any Surviving
Corporation Proposed Adjustment be contested, then the Surviving Corporation
shall contest the Surviving Corporation Proposed Adjustment (including pursuing
all administrative and judicial appeals and processes) at the Stockholders'
expense and shall permit the Stockholders to participate in (but not to control)
such proceeding.
(d) The parties shall cooperate fully with each other in all matters
relating to Taxes and in the determination of amounts payable hereunder. In the
case of disagreement as to the course of action to be pursued in dealing with
taxing authorities (including, without limitation, matters with respect to
preparation and filing of tax returns, conduct of audits, and proceedings in
courts), the decision of the party (the Surviving Corporation, on the one hand,
or the Stockholders, on the other hand) who will economically benefit from or be
burdened by the course of action (or in the case both parties benefit and/or are
burdened, the decision of the party with the greatest benefit or burden) shall
control.
SECTION 7.11. REGISTRATION RIGHTS.
(a) If at any time or times after the date hereof but prior to the third
anniversary of the Effective Time, PalEx shall determine to register any of its
securities (for itself or for any holder of securities of PalEx) under the 1933
Act or any successor legislation (other than the Registration Statement or a
registration relating to stock option plans, employee benefit plans or a
transaction pursuant to Rule 145 under the Act), and in connection therewith
PalEx may lawfully register the PalEx Common Stock held by the Stockholders and
Main Street, PalEx will promptly give written notice thereof to the Stockholders
and Main Street and will include in such registration and effect the
registration under the 1933 Act of all Registrable Securities (as hereinafter
defined )that the Stockholders and Main Street may request in writing by notice
delivered to PalEx within 20 days
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after receipt by the Stockholders and Main Street of the notice given by PalEx;
PROVIDED, HOWEVER, that in connection with any such offering by PalEx of any of
its securities, no such registration of Registrable Securities shall be required
if the managing underwriter, if any, for PalEx advises it in writing that
including all or part of the Registrable Shares in such offering will materially
adversely affect the proposed offering and jeopardize PalEx 's ability to sell
its own securities in such offering. If such managing underwriter advises PalEx
that, in its opinion, part of the Registrable Securities may be included in such
offering without materially adversely affecting the proposed offering, then
PalEx shall be obligated to include such lesser number of Registrable Securities
in such offering, which shares shall be taken from those owned and held by a
group consisting of the Stockholders, Main Street and other holders of PalEx
Common Stock having registration rights that are PARI PASSU with those of the
Stockholders and Main Street, and such limitation shall be imposed upon the
Stockholders and such other holders pro rata on the basis of the total number of
shares of PalEx Common Stock owned by the Stockholders, Main Street and such
other holders or obtainable by them upon the exercise of rights with respect to
other securities owned by them. All expenses of such registration and offering
shall be borne by the Company, except that the Stockholders and Main Street
shall bear underwriting commissions and discounts attributable to their
Registrable Securities being registered and the fees and expenses of separate
counsel, if any, for such Stockholders and Main Street. The Stockholders and
Main Street shall be entitled to an unlimited number of registrations under this
Section 7.11.
(b) For the purposes of this Section 7.11, the term "Registrable
Securities" shall mean (i) the PalEx Common Stock currently held by Main Street,
(ii) PalEx Common Stock to be issued in connection with the Merger, and (iii)
any PalEx Common Stock issued or issuable with respect to the shares identified
in (i) and (ii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
(c) Whenever, under the preceding paragraphs of this Section 7.11, PalEx
is required hereunder to register Registrable Securities, PalEx shall as
expeditiously as possible:
(i) Prepare and file with the SEC a registration statement
with respect to the Registrable Securities that complies with all
requirements of the Act;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with
respect to the sale of securities covered by such registration statement
for the period necessary to complete the proposed public offering (but in
no event for a period in excess of ninety (90) days);
(iii) Furnish to each Stockholder such copies of each
preliminary and final prospectus and such other documents as each such
Stockholder may reasonably request to facilitate the disposition of such
Stockholder's Registrable Securities;
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(iv) Enter into an underwriting agreement with customary terms
and provisions as reasonably agreed by PalEx and the proposed underwriter,
if any, of the offering,
(v) Use its best efforts to register and qualify the
Registrable Securities covered by such registration statement under
applicable state securities or "blue-sky" laws, provided that PalEx shall
not be required in connection therewith or as a condition thereto to
qualify to do business as a foreign corporation in any such jurisdiction
wherein it is not so qualified; and
(vi) Furnish to each selling Stockholder a signed
counterpart, addressed to the Stockholders, of
(A) an opinion of counsel to PalEx, and
(B) comfort letter(s) signed by the independent public
accountants who have certified PalEx's financial
statements included in the registration statement,
in each case, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountant's letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountant's letters delivered to the underwriters in underwritten public
offerings of securities.
(d) PalEx shall have the right to select the managing underwriter or
underwriters for any underwritten offering made pursuant to a registration under
this Section 7.11.
(e) In connection with any underwritten offering by PalEx in which the
Stockholders participate, the Stockholders shall, if requested by the managing
underwriter or underwriters thereof, agree not to sell any of their Registrable
Securities or any other securities of PalEx owned by such Stockholders in any
transaction other than pursuant to such underwritten offering for a period
beginning 60 days prior to the date PalEx and the underwriter reasonably expect
the registration statement to become effective, and for such period after the
effective date of the registration statement as is agreed upon by the
underwriters and PalEx (not to exceed 180 days), provided that the PalEx's
officers and directors and each holder of 5% or more of PalEx's issued and
outstanding PalEx Stock also agree to such limitations.
(f) PalEx may delay any underwritten offering pursuant to Section 7.11
when a condition or pending transaction exists the disclosure of which would
reasonably be expected to have a material adverse effect on the proposed
offering.
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(g) PalEx will indemnify each Stockholder, each of its officers, directors
and partners, and each other person, if any, who controls such Stockholder
within the meaning of the Section 15 of the 1933 Act, against any losses,
claims, damages, expenses, or liabilities to which such persons may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages
or liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement or any preliminary prospectus or final prospectus or
amendment or supplement thereto on the effective date thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and will reimburse such persons for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that PalEx will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, or any preliminary prospectus or final prospectus or
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to PalEx through an instrument duly executed by such
person specifically for use in the preparation thereof.
It shall be a condition precedent to the obligation of PalEx to include in
any registration statement any Registrable Securities then held by a Stockholder
that PalEx shall have received an undertaking, satisfactory to it and the
managing underwriter or underwriters, from each Stockholder to indemnify and
hold harmless (in the same manner and to the same extent as set forth in the
preceding paragraph) PalEx, each director of PalEx, each officer of PalEx who
shall sign such registration statement and the managing underwriter or
underwriters and any person who controls such Underwriters or PalEx within the
meaning of the 1933 Act, with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, if such statement or omission
was made in reliance upon and in conformity with information furnished to PalEx
through an instrument duly executed by the Stockholder specifically for use in
the preparation of such registration statement, preliminary prospectus or final
prospectus or such amendment or supplement thereto.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs in this Section 7.11, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assumed the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses incurred by the latter in connection with the
defense thereof.
SECTION 7.12. CONTRIBUTION TO COMPANY PROFIT SHARING PLAN. PalEx shall
make a one-time contribution of PalEx Common Stock to the Interstate Pallet
Co., Inc. Profit Sharing Plan (the
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"Plan") concurrently with the consummation of the IPO. PalEx shall contribute
that number of shares of PalEx Common Stock with a value equal to $75,000 based
on a price per share of PalEx Common Stock equal to the mid-point of the
estimated pricing range as set forth in the preliminary prospectus relating to
the IPO, adjusted to reflect a discount of 25%. The contribution of PalEx Common
Stock shall be allocated among the Company's employees based on the terms of the
Plan.
SECTION 7.13. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale of
PalEx Common Stock to the public without registration, PalEx agrees to use its
best efforts to:
(i) make and keep public information regarding PalEx available as those
terms are understood and defined in Rule 144 under the 1933 Act, at all times
from and after 90 days following the effective date of the first registration
under the 1933 Act filed by PalEx for an offering of its securities to the
general public;
(ii) file with the SEC in a timely manner all reports and other documents
required of PalEx under the 1933 Act and the 1934 Act at any time after it has
become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted PalEx Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by PalEx as to its compliance with the reporting requirements of Rule 144 (at
any time from and after 90 days following the effective date of the first
registration statement filed by PalEx for an offering of its securities to the
general public), and of the 1933 Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of PalEx, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
ARTICLE VIII
INDEMNIFICATION
The Stockholders and PalEx each make the following covenants:
SECTION 8.1. PALEX LOSSES.
(a) The Stockholders agree to indemnify and hold harmless PalEx and its
directors, officers, employees, representatives, agents and attorneys from,
against and in respect of any and all PalEx Losses (as defined below) suffered,
sustained, incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by the Company or the Stockholders in or
pursuant to this Agreement being untrue or incorrect in any respect; (ii) any
failure by the Company or the Stockholders to observe or perform their covenants
and agreements set forth in this Agreement
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or any other agreement or document executed by them in connection with the
transactions contemplated hereby; and (iii) any liability under the 1933 Act,
the 1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to the Company or the Stockholders
contained in any preliminary prospectus, relating to the IPO, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the Company or the Stockholders required to
be stated therein or necessary to make the statements therein not misleading,
and not provided to PalEx or its counsel by the Company or the Stockholders;
PROVIDED, HOWEVER, that such indemnity shall not inure to the benefit of PalEx
to the extent that such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary prospectus
and the Stockholders provided, in writing, corrected information to PalEx or its
counsel for inclusion in the final prospectus prior to distributing such
prospectus, and such information was not so included. This Section 8.1 is
intended to indemnify PalEx and its directors, officers, employees,
representatives, agents and attorneys from the results of their negligence. The
Stockholders' obligations pursuant to this Section 8.1 shall expire one (1) year
after the Closing, except with respect to (x) obligations under Sections 4.13
and 7.10 hereof, which shall survive until the earlier of (A) the expiration of
the applicable periods (including any extensions) of the respective statutes of
limitation applicable to the payment of the Taxes or (B) the completion of the
final audit and determinations by the applicable taxing authority and final
disposition of any deficiency resulting therefrom, and (y) solely to the extent
that PalEx actually incurs liability under the 1933 Act or the 1934 Act, the
obligations under clause (iii) above shall survive until the expiration of any
applicable statute of limitations with respect to such claims.
(b) "PalEx Losses" shall mean all damages (including, without limitation,
amounts paid in settlement with the Stockholders' consent, which consent may not
be unreasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorneys' fees), penalties, fines, interest and monetary sanctions, including,
without limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the rights of PalEx or such other persons to indemnification
hereunder.
SECTION 8.2. STOCKHOLDERS LOSSES.
(a) PalEx agrees to indemnify and hold harmless the Stockholders, for and
in respect of any and all Stockholders Losses (as defined below) suffered,
sustained, incurred or required to be paid by the Stockholders by reason of (i)
any representation or warranty made by PalEx in or pursuant to this Agreement
being untrue or incorrect in any respect; (ii) any failure by PalEx to observe
or perform its covenants and agreements set forth in this Agreement or any other
agreement or document executed by it in connection with the transactions
contemplated hereby; or (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
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material fact relating to PalEx or any of the Founding Companies other than the
Company contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to PalEx or any of the Founding Companies
other than the Company required to be stated therein or necessary to make the
statements therein not misleading. This Section 8.2 is intended to indemnify the
Stockholders from the results of their negligence. PalEx's obligations under
this Section 8.2 shall expire one year after Closing, except that, if the
Stockholders actually incur liability under the 1933 Act or the 1934 Act, the
obligations under clause (iii) above shall survive until the expiration of any
applicable statute of limitations with respect to such claims.
(b) "Stockholder's Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the consent of PalEx, which consent
may not be reasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorneys' fees), penalties, fines, interest and monetary sanctions, including,
without limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the right of the Stockholders to indemnification hereunder.
SECTION 8.3. NOTICE OF LOSS. A notice setting forth in reasonable detail
the breach or other matter which is asserted shall be promptly given to the
Indemnifying Party (as defined below) and, if such matter arises out of a suit,
action, investigation, proceeding or claim, such notice shall be given within
thirty (30) days after the Indemnified Party (as defined below) has knowledge of
the matter. The failure of the Indemnified Party to give notice hereunder shall
not release the Indemnifying Party from its obligations under this Article VIII,
except to the extent the Indemnifying Party is actually prejudiced by such
failure to give prompt notice. With respect to PalEx Losses, the Stockholders
shall be the Indemnifying Party and PalEx and its respective directors,
officers, employees, representatives, agents and attorneys shall be the
Indemnified Parties. With respect to Stockholders Losses, PalEx shall be the
Indemnifying Party and the Stockholders shall be the Indemnified Party.
SECTION 8.4. RIGHT TO DEFEND. Upon receipt of notice of any matter for
which indemnification might be claimed by an Indemnified Party, the Indemnifying
Party shall be entitled to defend, contest or otherwise protect against any such
matter at its own cost and expense, and the Indemnified Party must cooperate in
any such defense or other action. The Indemnified Party shall have the right,
but not the obligation, to participate at its own expense in defense thereof by
counsel of its own choosing, but the Indemnifying Party be entitled to control
the defense unless the Indemnified Party has relieved the Indemnifying Party
from liability with respect to the particular matter or the Indemnifying Party
fails to assume defense of the matter. In the event the Indemnifying Party shall
fail to defend, contest or otherwise protect in a timely manner against any
matter, the Indemnified Party shall have the right, but not the obligation,
thereafter to defend, contest or otherwise protect against the same and make any
compromise or settlement thereof and recover
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the reasonable cost thereof from the Indemnifying Party including, without
limitation, reasonable attorneys' fees, disbursements and all amounts paid as a
result of such suit, action, investigation, claim or proceeding or the
compromise or settlement thereof; provided, however, that the Indemnified Party
must send a written notice to the Indemnifying Party of any such proposed
settlement or compromise, which settlement or compromise the Indemnifying Party
may reject, in its reasonable judgment, within ten (10) days of receipt of such
notice. Failure to reject such notice within such ten (10) day period shall be
deemed an acceptance of such settlement or compromise. The Indemnified Party
shall have the right to effect a settlement or compromise over the objection of
the Indemnifying Party; provided, that if (i) the Indemnifying Party is
contesting such claim in good faith or (ii) the Indemnifying Party has assumed
the defense from the Indemnified Party, the Indemnified Party waives any right
to indemnity therefor. If the Indemnifying Party undertakes the defense of such
matters, the Indemnified Party shall not, so long as the Indemnifying Party does
not abandon the defense thereof, be entitled to recover from the Indemnifying
Party any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than the reasonable costs of
investigation undertaken by the Indemnified Party with the prior written consent
of the Indemnifying Party.
SECTION 8.5. COOPERATION. Each of PalEx, the Company and the Stockholders
and each of their affiliates, successors and assigns shall cooperate with each
other in the defense of any suit, action, investigation, proceeding or claim by
a third party and, during normal business hours, shall afford each other access
to their books and records and employees relating to such suit, action,
investigation, proceeding or claim and shall furnish each other all such further
information that they have the right and power to furnish as may reasonably be
necessary to defend such suit, action, investigation, proceeding or claim.
SECTION 8.6. EXCLUSIVE REMEDY. The indemnification provided for in this
Section 8 shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief brought by any party to this Agreement against
another party, provided that, nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive relief for a breach of
this Agreement.
SECTION 8.7. LIMITATION UPON INDEMNITY.
(a) Neither the Stockholders nor PalEx shall be entitled to
indemnification from the other under the provisions of this Article VIII until
such time as the claims subject to indemnification by such party exceed, in the
aggregate, Three Hundred Sixty Thousand Dollars ($360,000) (the "Indemnity
Deductible").
(b) The aggregate indemnification obligations of the Stockholders under
Article VIII shall be limited to the obligations in excess of the Indemnity
Deductible but not more than Thirty-Six Million Dollars ($36,000,000); PROVIDED,
HOWEVER, if the per share price of the PalEx Common Stock is less than the per
share price of the PalEx Common Stock issued in the IPO, the
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foregoing limit on indemnity obligations shall be reduced by the difference in
such prices multiplied by the number of shares of PalEx Common Stock issued to
the Stockholders pursuant to this Agreement.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date and continued fulfillment as
of the Consummation Date of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed;
(b) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect and no proceeding for
that purpose shall have been instituted by the SEC or any state regulatory
authorities;
(c) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the IPO or the Merger
shall have been issued and remain in effect;
(d) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the Merger
or make the consummation of the Merger illegal; and
(e) all material governmental and third party waivers, consents, orders
and approvals required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect.
SECTION 9.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date and
continued fulfillment as of the Consummation Date of the following additional
conditions:
(a) PalEx and Subsidiary shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of PalEx and Subsidiary
contained in this Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if
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made at and as of such date, and the Company shall have received a certificate
of the chief executive officer of PalEx and Subsidiary to that effect;
(b) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to the Stockholders of the Merger;
(c) the Company shall have received an opinion from the legal or
accounting advisors to PalEx, at the expense of PalEx, that the Merger will
constitute a tax-free reorganization under Section 368 of the Code, in which
regard the Company and the Stockholders shall provide representations reasonably
required by such advisors in providing such opinion;
(d) All conditions to the merger of the other Founding Companies, on
substantially the same terms as provided herein, with subsidiaries of PalEx
shall have been satisfied or waived by the applicable party.
SECTION 9.3. CONDITIONS TO OBLIGATIONS OF PALEX TO EFFECT THE MERGER.
Unless waived by PalEx, the obligations of PalEx to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on and as
of the date made and on and as of the Closing Date as if made at and as of such
date, and PalEx shall have received a Certificate of the President or Vice
President - Finance of the Company to that effect;
(b) the Stockholders shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Stockholders
contained in this Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if made at and
as of such date, and PalEx shall have received a Certificate of each Stockholder
to that effect;
(c) PalEx shall have received an opinion from McMahon, Surovik, Suttle,
Buhrman, Hicks & Gill, special counsel to the Company, dated the Closing Date,
reasonably satisfactory to PalEx and covering the due incorporation of the
Company, the binding nature of this Agreement, the effectiveness of the Merger
and the validity of the Common Stock to be exchanged in the Merger and certain
other customary matters reasonably requested by PalEx or its counsel;
(d) PalEx shall have received "COMFORT" letters in customary form from the
Company's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to PalEx) with respect to certain financial
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statements and other financial information included in the Registration
Statement and any subsequent changes in specified balance sheet and income
statement items, including total assets, working capital, total stockholders'
equity, total revenues and the total and per share amounts of net income; and
(e) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to PalEx of the Merger.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date under the following conditions:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by April 1, 1997 otherwise
than on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or any
of the Stockholders or any of their affiliates or associates;
(iii) if PalEx or Subsidiary (A) fails to perform in any material
respect any of their respective material covenants in this Agreement and
(B) does not cure such default in all material respects within 30 days
after written notice of such default is given to PalEx and Subsidiary; or
(iv) If PalEx fails to complete its acquisitions of Ridge or
Interstate.
(b) PalEx shall have the right to terminate this Agreement:
(i) if the Merger is not completed by April 1, 1997 otherwise
than on account of delay or default on the part of PalEx or any of its
stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of PalEx or any of its 5%
stockholders or any of their affiliates or associates;
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(iii) if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is giv
en to the Company by PalEx;
(iv) if the Stockholders (A) fail to perform in any material respect
any of their material covenants in this Agreement and (B) do not cure such
default in all material respects within 30 days after written notice of
such default is given to the Stockholders by PalEx; or
(v) if PalEx fails to complete its acquisitions of Ridge or
Interstate.
SECTION 10.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either PalEx or the Company, as provided in Section 10.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Subsidiary, PalEx or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
7.1, 7.3 and 7.5, all of which shall survive the termination). Nothing in this
Section 10.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 10.3. AMENDMENT. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law.
SECTION 10.4. WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XI
SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The PalEx Common Stock to be acquired by each of the Stockholders
pursuant to this Agreement is being acquired solely for such Stockholder's own
account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution.
SECTION 11.1. ECONOMIC RISK; SOPHISTICATION. Each of the Stockholders
represents and warrants to PalEx that he or she is an "accredited investor" as
defined in Regulation D promulgated under the 1933 Act; that he or she is able
to bear the economic risk of an investment in the PalEx Common Stock acquired
pursuant to this Agreement and can afford to sustain a total
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loss of such investment and has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks of
the proposed investment in the PalEx Common Stock; and that he has had an
adequate opportunity to ask questions and receive answers from the officers of
PalEx concerning any and all matters relating to the transactions described
herein including, without limitation, the background and experience of the
current and proposed officers and directors of PalEx, and the plans for the
operations of the business of PalEx.
SECTION 11.2. TRANSFER RESTRICTIONS.
(a) Except for transfers to immediate family members who agree to be bound
by the restrictions set forth in this Section 11.2 (or trusts for the benefit of
the Stockholders or family members, the trustees of which so agree), and except
for sales in accordance with Section 7.11, for a period of two (2) years from
the Closing, the Stockholders shall not (a) sell, assign, exchange, transfer,
encumber, pledge, distribute or otherwise dispose of (i) any shares of PalEx
Common Stock received by the Stockholders in the Merger, or (ii) any interest
(including, without limitation, an option to buy or sell) in any such shares of
PalEx Common Stock, in whole or in part, and no such attempted transfer shall be
treated as effective for any purpose; or (b) engage in any transaction, whether
or not with respect to any shares of PalEx Common Stock or any interest therein,
the intent or effect of which is to reduce the risk of owning the shares of
PalEx Common Stock acquired pursuant to Section 2.2 hereof (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions). The certificates evidencing the PalEx Common Stock
delivered to the Stockholders pursuant to Section 2.2 of this Agreement will
bear a legend substantially in the form set forth below and containing such
other information as PalEx may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO_____________, 1999.
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Main Street will execute an agreement to restrict the transfer of its
shares of PalEx Common Stock in a manner identical to the restrictions included
in this Article XI.
ARTICLE XII
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
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At the Closing, each of the Stockholders shall execute and deliver an
employment and noncompetition agreement substantially in the form of Exhibit 12
and Main Street shall execute a noncompetition agreement with substantially the
same terms.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.1. BROKERS. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for the fee described in SCHEDULE 13.1) or commission in connection with
the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. PalEx represents and warrants
that no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of PalEx or its stockholders (other than underwriting discounts and
commission to be paid in connection with the IPO).
SECTION 13.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to PalEx or Subsidiary, to:
Vance K. Maultsby, Jr.
Chief Executive Officer
3555 Timmons Lane, Suite 610
Houston, Texas 77027
with a copy to:
John Wombwell, Esq.
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
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(b) If to the Company, to:
Fraser Industries, Inc.
Horseshoe Bay Resort Airport, East
Horseshoe Bay, Texas 78657
Attention: Troy Fraser
with a copy to:
Bob J. Surovik
McMahon, Surovik, Suttle, Buhrman, Hicks & Gill
Suite 800
400 Pine Street
Abilene, Texas 79601
SECTION 13.3. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
SECTION 13.4. MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, except that PalEx
may assign this Agreement to any other wholly-owned subsidiary of PalEx. THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION
AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS
EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 13.5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 13.6. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and except as set forth in
Section 8.1(a), nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
MAIN STREET CAPITAL PALEX, INC.
PARTNERS, L.P.
By: Main Street Advisory Partners, L.P. By: /S/ VANCE K. MAULTSBY, JR.
Name: Vance K. Maultsby, Jr.
By: Main Street Merchant Partners, L.L.C. Title: Chief Executive Officer
By:/S/ SAM HUMPHREYS
Name: Sam Humphreys FRASER ACQUISITION CORPORATION
Title: Managing Director
By:/S/ VANCE K. MAULTSBY, JR.
Name: Vance K. Maultsby, Jr.
Title: Chief Executive Officer
FRASER INDUSTRIES, INC.
By:/S/ TROY FRASER
Name: Troy Fraser
Title: Chief Executive Officer
/S/ TROY FRASER
Troy Fraser, Individually
/S/ STEVE FRASER
Steve Fraser, Individually
/S/ JOE ELMORE
Joe Elmore, Individually
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SCHEDULE 2.1
MANNER OF CONVERSION
At the Closing, the Stockholders shall receive the Cash Component (as
defined below) and the Fraser Stock Component (as defined below). For purposes
of the Agreement, the terms Cash Component and Fraser Stock Component shall have
the following meanings:
(a) Cash Component shall mean (i) the cash of $7,200,000 payable to the
Fraser Stockholders taken first from the amount in the accumulated
adjustments account then from the proceeds of the IPO, and (ii)
assumption of the Adjusted Indebtedness (defined below). The term
Adjusted Indebtedness shall mean the result obtained by subtracting from
the Company's total indebtedness as of the Closing Date (i) $1,650,000
and (ii) indebtedness incurred and cash expenditures made after April
28, 1996 specifically to fund capital expenditures after such date
(including start-up costs associated with the Memphis facility and
feasibility studies with respect to plants considered for opening in
1997).
(b) Fraser Stock Component shall mean the number of shares of PalEx
Common Stock received by the Fraser Stockholders, which shall be
determined by applying the following formula:
FRASER STOCK REFERENCE VALUE
Fraser Stock Component= 6,000,000 x Sum of Fraser, Ridge and
Interstate Stock Reference
Values
WHERE the Founding Companies Stock Reference Values will be
determined by subtracting from each Founding Company's Enterprise
Value ($36 million for Fraser and Ridge, $4.8 million for
Interstate) each Founding Company's Cash Component
Each of the Founding Companies shall have the right to reduce their
respective Stock Component calculated above by returning shares of PalEx Common
Stock. The Founding Company shall receive 2.77778 options to purchase PalEx
Common Stock at the IPO price for each share of PalEx Common Stock returned. The
reduction of the Stock Component by a Founding Company shall not affect the
Stock Component of the other Founding Companies which shall be calculated as if
such reduction had not occurred.
A Founding Company shall exercise such right to return stock by written
notice to PalEx no later than three (3) days prior to the printing of the
Preliminary Prospectus in connection with the IPO.
EXHIBIT 10.3
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"Agreement") is made as of the 20th day of December 1996, by and among PalEx,
Inc., a Delaware corporation ("PalEx"), Main Street Capital Partners, L.P., a
Texas limited partnership ("Main Street"), Interstate Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of PalEx ("Subsidiary"),
Interstate Pallet Co., Inc., a Virginia corporation (the "Company"), and the
individual stockholder of the Company identified on Schedule A to this Agreement
(the "Stockholder").
WITNESSETH:
WHEREAS, the respective stockholders and Boards of Directors of Subsidiary
and the Company (collectively referred to as the "Constituent Corporations")
deem it advisable and in the best interests of the Constituent Corporations and
their respective stockholders that Subsidiary merge (the "Merger") with and into
the Company;
WHEREAS, PalEx is entering into other agreements substantially similar to
this Agreement with each of Fraser Industries, Inc., a Texas corporation
("Fraser"), and Ridge Pallets, Inc., a Florida corporation ("Ridge" and,
together with the Company and Fraser, collectively referred to as the "Founding
Companies"), which agreements provide for the merger of subsidiaries of PalEx
with and into Fraser and Ridge simultaneously with the Merger; and
WHEREAS, the Boards of Directors of PalEx, Subsidiary and the Company have
approved and adopted this Agreement and intend this transaction to qualify as a
tax-free transaction under the provisions of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2), Subsidiary
shall be merged with and into the Company in accordance with the Delaware
General Corporation Law ("DGCL") and the Virginia Business Corporation Act and
the separate existence of Subsidiary shall cease. The Company shall be the
surviving party in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation." The Merger will be effected in a single transaction.
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SECTION 1.2. EFFECTIVE TIME OF MERGER. The Merger shall become effective
(the "Effective Time") at such time as shall be stated in certificates or
articles of merger (the "Certificates of Merger") to be filed with the Secretary
of State of the State of Delaware and the Clerk of the State Corporation
Commission of Virginia. The Constituent Corporations will cause the Certificates
of Merger to be executed and delivered to the Secretary of State of the State of
Delaware and the Clerk of the State Corporation Commission of Virginia on or
before the Closing Date (as defined in Article III).
SECTION 1.3. CERTIFICATE OF INCORPORATION, BY-LAWS, BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION; BOARD OF DIRECTORS AND OFFICERS OF PALEX. At
the Effective Time of the Merger:
(a) An Amended and Restated Certificate of Incorporation with the same
provisions as Subsidiary's Certificate of Incorporation then in effect shall be
filed and shall become the Certificate of Incorporation of the Surviving
Corporation, and subsequent to the Effective Time, such Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation until amended as provided by law;
(b) The By-laws of Subsidiary then in effect shall become the By-laws of
the Surviving Corporation, and subsequent to the Effective Time, such By-laws
shall be the By-laws of the Surviving Corporation until they shall thereafter be
duly amended;
(c) The Boards of Directors of PalEx and the Surviving Corporation shall
consist of the persons identified on SCHEDULE 1.3(C) hereto. The Board of
Directors of PalEx and the Surviving Corporation shall hold office subject to
the laws of the State of Delaware and of the Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(d) The officers of PalEx and the Surviving Corporation shall be the
persons identified on SCHEDULE 1.3(D) hereto, each of such officers to serve
until such officer's successor is duly elected and qualified, subject to the
provisions of the Certificate of Incorporation and By-laws of PalEx and the
Surviving Corporation and the terms of any employment agreement executed by any
such officer.
SECTION 1.4. EFFECT OF MERGER. The identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of the Company shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of Subsidiary shall be merged with and into the Company, as
the Surviving Corporation. At the Effective Time of the Merger, the separate
existence of Subsidiary shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions for shares, all taxes, including those due and owing and
those accrued, and all other choses in action, and all and every other interest
of or belonging to or due to the Company and Subsidiary shall be taken and
deemed to be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and
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privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Subsidiary; and the title to any real estate, or interest
therein, whether by deed or otherwise, under the laws of the state of
incorporation vested in the Company or Subsidiary, shall not revert or be in any
way impaired by reason of the Merger. Except as otherwise provided in this
Agreement, following the Merger the Surviving Corporation shall be responsible
and liable for all the liabilities and obligations of Subsidiary and Company and
any claim existing, or action or proceeding pending, by or against the Company
or Subsidiary may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the Company or Subsidiary shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Subsidiary shall attach to the Surviving Corporation and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
ARTICLE II
CONVERSION OF STOCK
SECTION 2.1. MANNER OF CONVERSION. At the Effective Time, by virtue of the
Merger and without any action on the part of PalEx, Subsidiary, the Company or
any of the Stockholder:
(a) The shares of common stock, par value $100.00 per share, of the
Company (the "Company Stock") that are issued and outstanding immediately prior
to the Effective Time, automatically shall be deemed to represent (i) the right
to receive that number of shares of common stock, par value $.01 per share, of
PalEx ("PalEx Common Stock") set forth in SCHEDULE 2.1 and (ii) the right to
receive the amount of cash set forth in SCHEDULE 2.1. As of the Effective Time,
all shares of Company Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Company Stock shall cease to
have any rights with respect thereto, except the right to receive that number of
shares of PalEx Common Stock and cash to be issued in consideration therefore
upon surrender of such certificate in accordance with Section 2.2.
(b) All shares of Company Stock that are held by the Company as treasury
stock, if any, shall be canceled and retired and no shares of PalEx Common Stock
or other consideration shall be delivered or paid in exchange therefor.
(c) Each share of capital stock of Subsidiary issued and outstanding and
owned by PalEx shall, by virtue of the Merger and without any action on the part
of PalEx, be converted into one share of common stock, $.01 par value, of the
Company, as the Surviving Corporation.
SECTION 2.2. EXCHANGE OF CERTIFICATES FOR CONSIDERATION. At the Closing
(as defined in Article III), the Stockholder shall deliver to PalEx the original
certificates representing the Company Stock, duly endorsed in blank by the
Stockholder or accompanied by blank stock powers.
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The Stockholder agrees promptly to cure any deficiencies with respect to the
endorsement of the certificates or other documents of conveyance with respect to
such Company Stock. Upon surrender
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of such certificates, the Stockholder shall be entitled to receive certificates
representing the number of shares of PalEx Stock and the amount of cash set
forth in SCHEDULE 2.1, which shall be delivered on the Consummation Date (as
defined in Article III).
ARTICLE III
THE CLOSING AND CONSUMMATION DATE
On the date of execution of the underwriting agreement (the "Underwriting
Agreement") relating to the initial public offering of PalEx Stock (the "IPO"),
the parties shall take all actions necessary (i) to effect the Merger
(including, if permitted by applicable state law, the filing with the
appropriate state authorities of the Certificates of Merger which shall become
effective on the Consummation Date (as defined below)) and (ii) to effect the
conversion and delivery of shares referred to in Section 2.2 (hereinafter
referred to as the "Closing"); PROVIDED, HOWEVER, that such actions shall not
include the actual completion of the Merger or the conversion and delivery of
the shares referred to in Article II, which actions shall be taken on the
Consummation Date. The Closing shall take place at a location mutually agreeable
to the Company and PalEx. The date on which the Closing shall occur shall be
referred to as the "Closing Date." On the Consummation Date, the Certificates of
Merger shall be filed with the appropriate state authorities, or if already
filed shall become effective, and all transactions contemplated by this
Agreement shall occur and be deemed to be completed. The Consummation Date shall
be the date on which the closing of the IPO occurs.
During the period from the Closing Date to the Consummation Date, this
Agreement may only be terminated by the parties if the Underwriting Agreement is
terminated pursuant to the terms of such agreement or as otherwise expressly
provided herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
The Company and Stockholder represent and warrant to PalEx as follows:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Virginia and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing will
not, when taken together with all other such failures, have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the Company (a "Company Material
Adverse Effect"). True, accurate and complete copies of the Company's Articles
of Incorporation and By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to PalEx.
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SECTION 4.2. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 500 shares of
Company Stock. As of December 20, 1996, 100 shares of Company Stock were issued
and outstanding. All of such issued and outstanding shares are validly issued
and are fully paid, nonassessable and free of preemptive rights. The Stockholder
owns beneficially and of record all of the shares of the Company Stock, which
constitutes all of the outstanding shares of capital stock of the Company, and
such Company Stock is owned free and clear of all liens, claims or encumbrances
of any nature. As a result of the Merger, the Stockholder will convey and
transfer to PalEx good and marketable title to the Company Stock owned by him.
(b) Except as set forth on SCHEDULE 4.2 attached hereto, as of the date
hereof there were no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of the Company or
obligating the Company to grant, extend or enter into any such agreement or
commitment or obligating the Stockholder to convey or transfer any Company
Stock. There are no voting trusts, proxies or other agreements or understandings
to which the Company or the Stockholder is a party or is bound with respect to
the voting of any shares of capital stock of the Company.
SECTION 4.3. NO SUBSIDIARIES. The Company has no subsidiaries and, except
as set forth on SCHEDULE 4.3, it does not own any capital stock of any
corporation or any interest in any partnership, joint venture or limited
liability company.
SECTION 4.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been approved by the Board of Directors of the Company and by the
Stockholder, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholder, and, assuming the due authorization, execution and delivery hereof
by PalEx, Subsidiary and Main Street, constitutes a valid and legally binding
agreement of the Company and the Stockholder, enforceable against the Company
and the Stockholder in accordance with its terms, except that such enforcement
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each of the Company
and the Stockholder do not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
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termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
the Company under any of the terms, conditions or provisions of (i) the articles
of incorporation or by-laws of the Company (ii) any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any court or governmental authority applicable to the Company or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or the
Stockholder is now a party or by which the Stockholder or the Company or any of
its properties or assets may be bound or affected. The consummation by the
Company and the Stockholder of the transactions contemplated hereby will not
result in any violation, conflict, breach, right of termination or acceleration
or creation of liens under any of the terms, conditions or provisions of the
items described in clauses (i) through (iii) of the preceding sentence, subject,
in the case of the terms, conditions or provisions of the items described in
clause (iii) above, to obtaining (prior to the Effective Time) consents required
from commercial lenders, lessors or other third parties. Excluded from the
foregoing sentences of this paragraph (b), insofar as they apply to the terms,
conditions or provisions of the items described in clauses (ii) and (iii) of the
first sentence of this paragraph (b), are such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, reasonably be expected
to have a Company Material Adverse Effect.
(c) Except for (i) the filing in connection with the IPO of a registration
statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission ("SEC") pursuant to the Securities Act of 1933 (the "1933
Act"), (ii) the declaration of the effectiveness thereof by the SEC and filings
with various state blue sky authorities, and (iii) the making of the Merger
Filings with the Secretary of State of the State of Delaware and the Clerk of
the State Corporation Commission of Virginia in connection with the Merger, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company and
the Stockholder or the consummation by the Company and the Stockholder of the
transactions contemplated hereby.
SECTION 4.5. FINANCIAL STATEMENTS. The financial statements for the fiscal
year ended December 31, 1995 and unaudited interim financial statements of the
Company for the three months ended November 30, 1996 (collectively, the "Company
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
the Company as of the dates thereof and the results of its operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein.
SECTION 4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
SCHEDULE 4.6 attached hereto, the Company did not have at November 30, 1996, nor
has it incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature,
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except (a) liabilities, obligations or contingencies (i) which are accrued or
reserved against in the Company Financial Statements or reflected in the notes
thereto or (ii) which were incurred after November 30, 1996 and were incurred in
the ordinary course of business and consistent with past practices, and (b)
liabilities and obligations which are of a nature not required to be reflected
in the Company Financial Statements prepared in accordance with generally
accepted accounting principles consistently applied and which were incurred in
the normal course of business and are described on SCHEDULE 4.6. SCHEDULE 4.6
includes a reasonable estimate by the Company and the Stockholder of the maximum
amount which may become payable with respect to any such liabilities which are
contingent.
SECTION 4.7. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 4.7 sets forth an
accurate list of the accounts and notes receivable of the Company as of December
20, 1996, including any such amounts which are not reflected in the Company's
balance sheet. Receivables from and advances to employees, the Stockholder and
any entities or persons related to or affiliated with the Stockholder are
separately identified on SCHEDULE 4.7. SCHEDULE 4.7 also sets forth an accurate
aging of all accounts and notes receivable as of November 30, 1996 showing
amounts due in 30-day aging categories. The trade and other accounts receivable
of the Company which are classified as current assets on the November 30, 1996
balance sheet are bona fide receivables, were acquired in the ordinary course of
business, are stated in accordance with generally accepted accounting principles
and, subject to the reserve for doubtful accounts, need not be written-off as
uncollectible.
SECTION 4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since August 31, 1996,
there has not been any material adverse change in the business, operations,
properties, assets, liabilities, condition (financial or other), results of
operations or prospects of the Company, nor, except as disclosed in SCHEDULE 4.8
has there been:
(i) any damage, destruction or loss (whether or not covered by
insurance) alone or in the aggregate, materially adversely
affecting the properties or business of the Company;
(ii) any change in the authorized capital stock of the Company or in
its securities outstanding or any change in the Stockholder's
ownership interests or any grant of any options, warrants,
calls, conversion rights or commitments;
(iii) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital
stock of the Company;
(iv) any increase in the compensation payable or to become payable by
the Company to the Stockholder or any of its officers,
directors, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in
accordance with past practice;
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(v) any work interruptions, labor grievances or claims filed, or any
proposed law, regulation or event or condition of any character
materially adversely affecting the business or future prospects
of the Company;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any
person, including, without limitation, the Stockholder and their
affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company;
(viii) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any
party to the transfer and assignment of any such assets,
property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or
assets outside of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the
Company is a party or any of its property is subject; or
(xiii) any material transaction by the Company outside the ordinary
course of business.
SECTION 4.9. LITIGATION. Except as disclosed in the SCHEDULE 4.9 attached
hereto, there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Company or the Stockholder, threatened against, relating to or
affecting the Company or the Stockholder, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seek to restrain the consummation of the Merger or which could reasonably
be expected, either alone or in the aggregate with all such claims, actions or
proceedings, to have a Company Material Adverse Effect. Except as disclosed in
SCHEDULE 4.9 attached hereto, neither the Company nor the Stockholder is subject
to any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have a Company Material Adverse Effect.
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SECTION 4.10. REGISTRATION STATEMENT. To the best of the Company's and
Stockholders' knowledge and belief, none of the information to be supplied by
the Company for inclusion in the Registration Statement will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 4.11. NO VIOLATION OF LAW. Except as disclosed in SCHEDULE 4.11
attached hereto, the Company is not in violation of nor has it been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in SCHEDULE 4.11 attached hereto, as of the date of this Agreement, no
investigation or review by any governmental or regulatory body or authority is
pending or, to the knowledge of the Company, threatened, nor has any
governmental or regulatory body or authority indicated an intention to conduct
the same, other than, in each case, those the outcome of which, as far as
reasonably can be foreseen, will not have a Company Material Adverse Effect. The
Company has all permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals necessary to conduct
their businesses as presently conducted (collectively, the "Company Permits"),
except for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a Company Material Adverse Effect. The Company is not
in violation of the terms of any Company Permit, except for delays in filing
reports or violations which, alone or in the aggregate, would not have a Company
Material Adverse Effect.
SECTION 4.12. COMPLIANCE WITH AGREEMENTS. Except as disclosed in SCHEDULE
4.12 attached hereto, the Company is not in breach or violation of or in default
in the performance or observance of any term or provision of, and no event has
occurred which, with lapse the of time or action by a third party, could result
in a default under, (a) the charter, by-laws or similar organizational
instruments of the Company or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which the Company is a party or by which it is bound or to
which any of its property is subject, which breaches, violations and defaults,
in the case of clause (b) of this Section 4.12, would have, in the aggregate, a
Company Material Adverse Effect.
SECTION 4.13. TAXES.
(a) The Company has (i) duly filed with the appropriate governmental
authorities or will file when due all Tax Returns required to be filed for all
periods ending on or prior to the Effective Time, other than those Tax Returns
the failure of which to file would not have a Company Material Adverse Effect
and such Tax Returns are true, correct and complete in all material respects,
and (ii) duly paid in full or made adequate provision for the payment of all
Taxes for all periods ending at or prior to the Effective Time. The liabilities
and reserves for Taxes reflected in the Company
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Financial Statements are adequate to cover all Taxes for all periods ending at
or prior to the Effective Time and there are no material liens for Taxes upon
any property or asset of the Company thereof, except for liens for Taxes not yet
due. There are no unresolved issues of law or fact arising out of a notice of
deficiency, proposed deficiency or assessment from the IRS or any other
governmental taxing authority with respect to Taxes of the Company which, if
decided adversely, singly or in the aggregate, would have a Company Material
Adverse Effect. The Company is not a party to any agreement providing for the
allocation or sharing of Taxes with any entity that is not, directly or
indirectly, a wholly-owned corporate subsidiary of Company. Neither the Company
nor any of its corporate subsidiaries has, with regard to any assets or property
held, acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code. The Company made a valid election
under Section 1362(a) of the Code, effective November 1, 1992, to be taxed as an
S corporation under the Code. As of immediately prior to the Closing, the
Company qualifies as an S corporation within the meaning of Subchapter S of the
Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
including, without limitation, income, gross receipts, excise, property, sales,
employment, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and such term shall include any interest, fines, penalties or additional
amounts and any interest in respect of any additions, fines or penalties
attributable or imposed or with respect to any such taxes, charges, fees, levies
or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with any Taxes.
SECTION 4.14. EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in SCHEDULE 4.14 attached hereto, at the date
hereof, the Company does not maintain or contribute to any material employee
benefit plans, programs, arrangements and practices (such plans, programs,
arrangements and practices of the Company being referred to as the "COMPANY
PLANS"), including employee benefit plans within the meaning set forth in
Section 3(3) of ERISA, or other similar material arrangements for the provision
of benefits (excluding any "MULTI-EMPLOYER PLAN" within the meaning of Section
3(37) of ERISA or a "MULTIPLE EMPLOYER PLAN" within the meaning of Section
413(c) of the Code). SCHEDULE 4.14(A) attached hereto lists all Multi-employer
Plans and Multiple Employer Plans which the Company maintains or to which it
makes contributions. The Company does not have any obligation to create any
additional such plan or to amend any such plan so as to increase benefits
thereunder, except as required under the terms of the Company Plans, under
existing collective bargaining agreements or to comply with applicable law.
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(b) Except as disclosed in SCHEDULE 4.14 attached hereto, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Company Plans that
could result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Company Material Adverse Effect, (ii) except for
premiums due, there is no outstanding material liability, whether measured alone
or in the aggregate, under Title IV of ERISA with respect to any of the Company
Plans, (iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Company Plans
subject to Title IV of ERISA other than in a "STANDARD TERMINATION" described in
Section 4041(b) of ERISA, (iv) none of the Company Plans has incurred any
"ACCUMULATED FUNDING DEFICIENCY" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Company Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit obligations
under each of the Company Plans which is subject to Title IV of ERISA did not,
as of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities, based upon reasonable actuarial
assumptions currently utilized for such Company Plan, (vi) each of the Company
Plans has been operated and administered in all material respects in accordance
with applicable laws during the period of time covered by the applicable statute
of limitations, (vii) each of the Company Plans which is intended to be
"QUALIFIED" within the meaning of Section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified and such determination has
not been modified, revoked or limited by failure to satisfy any condition
thereof or by a subsequent amendment thereto or a failure to amend, except that
it may be necessary to make additional amendments retroactively to maintain the
"QUALIFIED" status of such Company Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to
Multi-employer Plans, the Company has not made or suffered a "COMPLETE
WITHDRAWAL" or a "PARTIAL WITHDRAWAL," as such terms are respectively defined in
Sections 4203, 4204 and 4205 of ERISA and, to the best knowledge of the Company,
no event has occurred or is expected to occur which presents a material risk of
a complete or partial withdrawal under said Sections 4203, 4204 and 4205, (ix)
to the best knowledge of the Company, there are no material pending, threatened
or anticipated claims involving any of the Company Plans other than claims for
benefits in the ordinary course, and (x) the Company has no current material
liability, whether measured alone or in the aggregate, for plan termination or
complete withdrawal or partial withdrawal under Title IV of ERISA based on any
plan to which any entity that would be deemed one employer with the Company
under Section 4001 of ERISA or Section 414 of the Code contributed during the
period of time covered by the applicable statute of limitations (the "COMPANY
CONTROLLED GROUP PLANS"), and the Company does not reasonably anticipate that
any such liability will be asserted against the Company . None of the Company
Controlled Group Plans has an "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 302 of ERISA and 412 of the Code).
(c) SCHEDULE 4.14 attached hereto contains a true and complete summary or
list of or otherwise describes all employment contracts and employee benefit
arrangements with all employees of the Company.
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SECTION 4.15. LABOR MATTERS. Except as set forth in SCHEDULE 4.15 attached
hereto, (a) there are no significant controversies pending or, to the knowledge
of the Company, threatened between the Company and any of its employees, (b)
none of the Company's employees is represented by a labor union or covered by a
collective bargaining agreement, and to the knowledge of the Company, there are
no organizational efforts and no campaign is under way to establish such
representation or coverage, (c) the Company has, to the knowledge of the
Company, complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (d) no person has, to the knowledge of the
Company, asserted that the Company is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing, except for such controversies, organizational efforts, non-compliance
and liabilities which, singly or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect.
SECTION 4.16. ENVIRONMENTAL MATTERS.
(a) To the best of the Company's knowledge and belief, except as set forth
in SCHEDULE 4.16 attached hereto, (i) the Company has conducted its businesses
in compliance with all applicable Environmental Laws, including, without
limitation, having all permits, licenses and other approvals and authorizations
necessary for the operation of their respective businesses as presently
conducted, (ii) none of the properties owned by the Company contain any
Hazardous Substance as a result of any activity of the Company in amounts
exceeding the levels permitted by applicable Environmental Laws, (iii) the
Company has not received any notices, demand letters or requests for information
from any Federal, state, local or foreign governmental entity or third party
indicating that the Company may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of its business,
(iv) there are no civil, criminal or administrative actions, suits, demands,
claims, hearings, investigations or proceedings pending or threatened, against
the Company relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law, (vi) no Hazardous
Substance has been disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the Company as a
result of any activity of the Company during the time such properties were
owned, leased or operated by the Company, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other analysis regarding
compliance or non-compliance with any applicable Environmental Law conducted by
or which are in the possession of the Company relating to the activities of the
Company which are not listed on SCHEDULE 4.16 attached hereto prior to the date
hereof, (viii) there are no underground storage tanks on, in or under any
properties owned by the Company and no underground storage tanks have been
closed or removed from any of such properties during the time such properties
were owned, leased or operated by the Company, (ix) there is no asbestos or
asbestos containing material present in any of the properties owned by the
Company, and no asbestos has been removed from any of such properties during the
time such properties were owned, leased or operated by the Company, and (x)
neither the Company nor any of its respective properties are subject to any
material liabilities or
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expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (x) that, singly or in the aggregate, would not reasonably
be expected to have a Company Material Adverse Effect.
(b) As used herein, "ENVIRONMENTAL LAW" means any Federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity relating to
(x) the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety or (y) the exposure to, or the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on the Closing Date. The term
Environmental Law includes, without limitation, (i) the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "HAZARDOUS SUBSTANCE" means any substance presently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by any
government authority or any Environmental Law including, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
SECTION 4.17. TITLE TO ASSETS. The Company has good and marketable title
in fee simple to all its property and good title to all its leasehold interests
and other properties, as reflected in the most recent balance sheet included in
the Company Financial Statements, except for the assets which are to be sold or
dividended to the Stockholder pursuant to Section 6.4 and properties and assets
that have been disposed of in the ordinary course of business since the date of
such balance sheet, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except (i) the lien for current taxes,
payments of which are not yet delinquent, (ii) such imperfections in title and
easements and encumbrances, if any, as are not substantial in character, amount
or extent and do not materially detract from the value, or interfere with the
present use of the property subject
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thereto or affected thereby, or otherwise materially impair the Company's
business operations (in the manner presently carried on by the Company), and
(iii) except for such matters which, singly or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. All leases
under which the Company leases any substantial amount of real or personal
property have been delivered to PalEx and are in good standing, valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event which with notice or lapse of time
or both would become a default other than defaults under such leases which in
the aggregate will not cause a Company Material Adverse Effect
SECTION 4.18. INSURANCE. SCHEDULE 4.18 sets forth an accurate list as of
November 30, 1996 of all insurance policies carried by the Company and of all
insurance claims or losses in excess of $50,000 or material workmen's
compensation claims received for the past five (5) policy years. The losses and
claims not listed in SCHEDULE 4.18 will not in the aggregate result in a Company
Material Adverse Effect. Also attached to SCHEDULE 4.18 are true, complete and
correct copies of all of the Company's insurance policies, covering at least the
past three years. None of such policies is a "claims made" policy. The insurance
policies set forth on SCHEDULE 4.18 provide adequate coverage against the risks
involved in the Company's business. Such policies are currently in full force
and effect.
SECTION 4.19. INTEREST IN CUSTOMERS AND SUPPLIERS AND RELATED-PARTY
TRANSACTIONS. Except as described on SCHEDULE 4.19, no Stockholder, officer,
director or affiliate of the Company (i) possesses, directly or indirectly, any
financial interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company, or (ii) is a
party to an agreement or relationship, that involves the receipt by such person
of compensation or property from the Company other than through a customary
employment relationship.
SECTION 4.20. BUSINESS RELATIONS. SCHEDULE 4.20 contains an accurate list
of all customers of the Company representing five percent (5%) or more of the
Company's revenues for the twelve (12) months ended August 31, 1996 and the
three (3) months ended November 30, 1996. Except as set forth on SCHEDULE 4.20,
since August 31, 1995, none of the Company's significant customers has canceled
or substantially reduced its purchases from the Company, nor are any of such
customers threatening to do so. Except as set forth on SCHEDULE 4.20, since
August 31, 1995, the Company has not experienced any difficulties in obtaining
any inventory items necessary to the operation of its business, and, to the
knowledge of the Company and the Stockholder, no such shortage of supply of
inventory items is threatened or pending. To the knowledge of the Company and
the Stockholder, no customer or supplier of the Company will cease to do
business with, or substantially reduce its purchases from, the Company after the
consummation of the transactions contemplated hereby, which cessation or
reduction would reasonably be expected to have a Company Material Adverse
Effect. The Company is not required to provide any bonding or other financial
security arrangements in any material amount in connection with any transactions
with any of its customers or suppliers.
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SECTION 4.21. DISCLOSURE. The Stockholder has fully provided PalEx with
all the information that PalEx has requested in analyzing whether to consummate
the Merger. To the best of the Company's and Stockholders' knowledge and belief,
none of the information so provided nor any representation or warranty of the
Stockholder contained in this Agreement contains any untrue statement regarding
a material fact or omits to state a material fact necessary in order to make the
statements made herein or in the information provided, in light of the
circumstances under which they were made, not misleading.
SECTION 4.22. TRADEMARKS AND INTELLECTUAL PROPERTY COMPLIANCE. Company
owns or has the right to use, without any material payment to any other party,
all of its patents, trademarks (registered or unregistered), trade names,
service marks, copyrights and applications ("Intellectual Property Rights") and
the consummation of the transactions contemplated hereby will not alter or
impair such rights in any material respect. To the best of the Company's and
Stockholder's knowledge and belief, no claims are pending by any person with
respect to the ownership, validity, enforceability or use of any such
Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing which claims could reasonably be expected
to have a Company Material Adverse Effect.
SECTION 4.23. NO IMPLIED REPRESENTATIONS. Notwithstanding anything
contained in this Article or any other provision of this Agreement or any of the
related documents, it is the explicit understanding of each party hereto that
the Company and the Stockholder are not making any representation or warranty
whatsoever, express or implied, other than those representations and warranties
of the Company and the Stockholder in this Agreement and the related documents.
It is understood that any estimates, projections or other predictions which
otherwise have been provided to PalEx are not and shall not be deemed to be
representations or warranties of the Company or the Stockholder, but as the good
faith estimates and assumptions of the Company and the Stockholder intended to
be reasonable at the time made concerning the most likely course of the Company
and its businesses. The Company, the Stockholder and PalEx acknowledge that
there are uncertainties inherent in attempting to make such estimates,
projections and other predictions, that the Company, the Stockholder and PalEx
are familiar with such uncertainties, that the Company, the Stockholder and
PalEx are taking full responsibility for making their own evaluation of the
adequacy and accuracy of all estimates, projections and other predictions so
furnished to them, and that neither PalEx, the Stockholder nor any of the
Founding Companies shall have any claim against anyone with respect thereto.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND SUBSIDIARY
PalEx and Subsidiary represent and warrant to the Company as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION.
(a) PalEx is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. True, accurate and complete copies of
each of PalEx's Certificate of Incorporation and By-laws, as in effect on the
date hereof, including all amendments thereto, have heretofore been delivered to
the Company.
(b) Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and has the requisite
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Subsidiary is qualified to
do business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing will not, when taken together with all other such failures,
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of
Subsidiary. True, accurate and complete copies of each of Subsidiary's
Certificate of Incorporation and By-laws, as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the Company.
SECTION 5.2. CAPITALIZATION.
(a) The authorized capital stock of PalEx consists of (i) 30,000,000
shares of PalEx Common Stock, of which 1,071,389 shares were outstanding as of
December 20, 1996, and (ii) 5,000,000 shares of preferred stock, par value $.01
per share, none of which was issued and outstanding as of December 20, 1996. All
of the issued and outstanding shares of PalEx Common Stock are validly issued
and are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth on SCHEDULE 5.2 attached hereto, as of the date
hereof, there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating PalEx to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital stock of
PalEx or obligating PalEx to grant, extend or enter into any such agreement or
commitment, except that PalEx declared a stock split prior to executing this
Agreement which resulted in Main Street owning 1,021,389 shares and Vance K.
Maultsby, Jr., owning 50,000 shares of PalEx Common Stock. There are no
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voting trusts, proxies or other agreements or understandings to which PalEx is a
party or is bound with respect to the voting of any shares of capital stock of
PalEx. The shares of PalEx Common Stock issued to the stockholder of the Company
in the Merger will be at the Effective Time duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights.
SECTION 5.3. NO SUBSIDIARIES. Except as set forth on SCHEDULE 5.3, PalEx
has no subsidiaries and it does not own any capital stock of any corporation or
any interest in any partnership, joint venture or limited liability company.
SECTION 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) PalEx and Subsidiary have full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors and stockholders of PalEx
and Subsidiary, and no other corporate proceedings on the part of PalEx or
Subsidiary are necessary to authorize the execution and delivery of this
Agreement or the consummation by PalEx and Subsidiary of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
PalEx and Subsidiary, and, assuming the due authorization, execution and
delivery hereof by the Company and the Stockholder, constitutes a valid and
legally binding agreement of PalEx and Subsidiary enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by PalEx and Subsidiary
does not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the respective properties or assets of PalEx
or Subsidiary under any of the terms, conditions or provisions of (i) the
charter or by-laws of PalEx or Subsidiary, as applicable, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to PalEx or
Subsidiary or any of their respective properties or assets or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which PalEx or Subsidiary is now a party or by which PalEx or Subsidiary
or any of their respective properties or assets may be bound or affected. The
consummation by PalEx and Subsidiary of the transactions contemplated hereby
will not result in any violation, conflict, breach, right of termination or
acceleration or creation of liens under any of the terms, conditions or
provisions of the items described in clauses (i) through (iii) of the preceding
sentence, subject, in the case of the terms, conditions or provisions of the
items described in clause (ii) above, to obtaining (prior to the Effective Time)
PalEx Required Statutory Approvals (as defined in Section 5.4(c)) and, in the
case of the terms, conditions or provisions of the items described in clause
(iii) above, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties.
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Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions of the items described in clauses
(ii) and (iii) of the first sentence of this paragraph (b), are such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of PalEx or Subsidiary (a "PalEx Material Adverse Effect").
(c) Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, (ii) the declaration of the effectiveness thereof by
the SEC and filings with various state blue sky authorities, and (iii) the
making of the Merger Filing with the Secretary of State of the State of Delaware
and the Clerk of the State Corporation Commission of Virginia in connection with
the Merger, the filings and approvals referred to in clauses (i) through (iii)
are collectively referred to as the "PALEX REQUIRED STATUTORY APPROVALS", no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by PalEx or
Subsidiary or the consummation by PalEx or Subsidiary of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not, in the aggregate, have a PalEx Material Adverse
Effect.
SECTION 5.5. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed to
the Company in writing, neither PalEx nor Subsidiary have incurred any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except those incurred in connection with the Merger, this
Agreement, the agreements with the other Founding Companies and the IPO. Except
as contemplated by the foregoing, PalEx and Subsidiary have not engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is it bound by any obligation or undertaking.
SECTION 5.6. LITIGATION. There are no claims, suits, actions or
proceedings pending or, to the knowledge of PalEx or Subsidiary, threatened
against, relating to or affecting PalEx or Subsidiary, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
the IPO or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to have a PalEx Material Adverse
Effect.
SECTION 5.7. NO VIOLATION OF LAW. PalEx is not in violation of, nor has it
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority.
SECTION 5.8. AFFILIATE TRANSACTIONS. Except for the ownership by Main
Street of shares of PalEx Common Stock and Main Street's obligations and rights
under Section 7.3, no transaction has occurred and no transaction is now
proposed to which PalEx is or will be a party, in which any current affiliate of
Main Street has a direct or indirect material interest.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as otherwise contemplated by this Agreement, after the date hereof and prior to
the Closing Date or earlier termination of this Agreement, unless PalEx shall
otherwise agree in writing, the Company shall:
(a) conduct its businesses in the ordinary and usual course and
consistent with past practice;
(b) not (i) amend or propose to amend its charter or by-laws, (ii) split,
combine or reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property or
otherwise, except for the payment of dividends or distributions described in
SCHEDULE 6.1;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of, any additional shares of, or any options, warrants or rights of
any kind to acquire any shares of, its capital stock of any class or any debt or
equity securities convertible into or exchangeable for such capital stock.
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or (B) borrowings to refinance existing indebtedness on terms
comparable with or better than those at the date hereof, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or any
options, warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) take or fail to
take any action which action or failure would cause the Company or the
Stockholder (except to the extent of any cash received in the Merger) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (iv) sell, pledge, dispose of or encumber any assets
or businesses other than sales in the ordinary course of business or (v) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
customers and others having business relationships with it and not engage in any
action, directly or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of PalEx to report operational matters of materiality and the
general status of ongoing operations;
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(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law or in the ordinary course of
business and consistent with past practices; and
(i) maintain with financially responsible insurance companies insurance on
its tangible assets and its businesses in such amounts and against such risks
and losses as are consistent with past practice.
SECTION 6.2. CONTROL OF THE COMPANY'S OPERATIONS. Nothing contained in
this Agreement shall give to PalEx, directly or indirectly, rights to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.3. NO - SHOP.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company and the Stockholder shall not, and
the Company shall use its best efforts to cause any officer, director or
employee of, or any attorney, accountant, investment banker, financial advisor
or other agent retained by it not to, initiate, solicit, negotiate, encourage or
provide non-public or confidential information to facilitate, any proposal or
offer to acquire all or any substantial part of the business and properties of
the Company or any capital stock of the Company, whether by merger, purchase of
assets or otherwise, whether for cash, securities or any other consideration or
combination thereof, or enter into any joint venture or partnership or similar
arrangement.
(b) The Company and the Stockholder (i) acknowledge that a breach of any
of their covenants contained in this Section 6.3 will result in irreparable harm
to PalEx which will not be compensable in money damages; and (ii) agree that
such covenant shall be specifically enforceable and that specific performance
and injunctive relief shall be a remedy properly available to the other party
for a breach of such covenant.
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SECTION 6.4. DIVIDEND OR SALE OF NONPRODUCTIVE ASSETS. The Company shall,
prior to the Closing Date, either dividend to the Stockholder or sell for cash
the assets listed on SCHEDULE 6.4. If the Company sells such assets, it shall
apply the proceeds from such sale to the reduction of outstanding debt. Any such
dividend shall not affect the total consideration due the Stockholder hereunder;
any such sale and reduction of the Company's debt shall affect the allocation of
the consideration to be received by the Stockholder in the Merger in the manner
described in Schedule 2.1.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS TO INFORMATION.
(a) The Company shall afford to PalEx and Subsidiary and their
accountants, counsel, financial advisors and other representatives (the "PALEX
REPRESENTATIVES") and PalEx and Subsidiary shall afford to the Company and its
accountants, counsel, financial advisors and other representatives (the "COMPANY
REPRESENTATIVES") full access during normal business hours throughout the period
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly to
one another all due diligence information requested by the other party. PalEx
and Subsidiary shall hold and shall use their reasonable best efforts to cause
the PalEx Representatives to hold, and the Company shall hold and shall use its
reasonable best efforts to cause the Company Representatives to hold, in strict
confidence all non-public information furnished to it in connection with the
transactions contemplated by this Agreement, except that each of PalEx,
Subsidiary and the Company may disclose any information that it is required by
law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with its
terms, each party shall promptly redeliver to the other all non-public written
material provided pursuant to this Section 7.1 and shall not retain any copies,
extracts or other reproductions of such written material. In the event of such
termination, all documents, memoranda, notes and other writings prepared by
PalEx and Subsidiary or the Company based on the information in such material
shall be destroyed (and PalEx, Subsidiary and the Company shall use their
respective reasonable best efforts to cause their advisors and representatives
to similarly destroy their documents, memoranda and notes), and such destruction
(and reasonable best efforts) shall be certified in writing by an authorized
officer supervising such destruction.
(c) The Company shall promptly advise PalEx in writing of any change or
the occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, any Company
Material Adverse Effect.
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SECTION 7.2. REGISTRATION STATEMENT. PalEx and the Founding Companies
shall file with the SEC as soon as is reasonably practicable after the date
hereof the Registration Statement and shall use all reasonable efforts to have
the Registration Statement declared effective by the SEC as promptly as
practicable. PalEx shall also take any action required to be taken under
applicable state blue sky or securities laws in connection with the issuance of
PalEx Common Stock. PalEx and the Company shall promptly furnish to each other
all information, and take such other actions, as may reasonably be requested in
connection with making such filings. The information provided and to be provided
by PalEx and the Company, respectively, for use in the Registration Statement
shall be true and correct in all material respects without omission of any
material fact which is required to make such information not false or misleading
as of the date thereof and in light of the circumstances under which given or
made.
SECTION 7.3. EXPENSES AND FEES. Main Street shall pay the fees and
expenses of the independent public accountants and legal counsel to PalEx and
all filing, printing and other reasonable, documented fees and expenses
associated with the IPO up to $1,250,000. PalEx shall pay or reimburse Main
Street from the proceeds of the IPO for such fees and expenses in excess of
$1,250,000. Neither the Company nor the Stockholder will be liable for any
portion of the above expenses in the event the IPO is not closed. PalEx shall
also pay (i) the underwriting discounts and commissions payable in connection
with the sale of PalEx Common Stock in the IPO, (ii) the fees payable to Raymond
James & Associates and Mr. Tucker Bridwell, as detailed on SCHEDULE 7.3 and
(iii) the fees and expenses incurred in delivering the tax opinion set forth in
Section 9.2(d). All other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
SECTION 7.4. AGREEMENT TO COOPERATE. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 7.5. PUBLIC STATEMENTS. Except as may require by law, no party
hereto shall issue any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby without the
prior written consent of PalEx and the Company.
SECTION 7.6. NOTIFICATION OF CERTAIN MATTERS. Each of the Company, the
Stockholder and PalEx agrees to give prompt notice to each of the others of, and
to use their respective reasonable best efforts to prevent or promptly remedy,
(i) the occurrence or failure to occur or the impending or threatened occurrence
or failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, or any of the information supplied by it for use in the
Registration Statement to be untrue in any material respect or to omit any
material fact, at any time from the date hereof until 25 days following the
Closing, and (ii) any material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; PROVIDED, HOWEVER, that the delivery
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of any notice pursuant to this Section 7.6 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
SECTION 7.7. DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) After the Effective Time, PalEx shall, to the fullest extent permitted
under applicable law, indemnify and hold harmless, each present and former
director, officer and agent of the Company (each, together with such person's
heirs, executors or administrators, an "INDEMNIFIED PARTY" and collectively, the
"INDEMNIFIED PARTIES") against any costs or expenses (including reasonable
attorneys fees), judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of, relating to or in connection with any action or
omission of PalEx occurring prior to the Effective Time (including, without
limitation, acts or omissions in connection with such persons serving as an
officer, director or other fiduciary in any entity if such service was at the
request or for the benefit of the Company). In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) PalEx shall pay the reasonable fees and expenses of counsel
selected by the indemnified parties, which counsel shall be reasonably
satisfactory to PalEx, promptly after statements therefor are received, (ii)
PalEx will cooperate in the defense of any such matter, and (iii) any
determination required to be made with respect to whether an indemnified party's
conduct complies with the standards set forth under the DGCL or other applicable
statutes and PalEx's or the Surviving Corporation's respective Certificates of
Incorporation or By-Laws shall be made by independent legal counsel acceptable
to PalEx as the case may be, and the indemnified party; PROVIDED, HOWEVER, that
PalEx shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld).
(b) In the event that PalEx or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in each such case, proper provisions shall be made so that the
successors and assigns of PalEx shall assume the obligations set forth in this
Section 7.7.
SECTION 7.8. CORRECTIONS TO THE REGISTRATION STATEMENT. Prior to the
effectiveness of the IPO, and until the expiration of the 25th day thereafter,
each of the Company, the Stockholder and PalEx shall correct promptly any
information provided by it to be used specifically in the Registration Statement
that shall have become false or misleading in any material respect and shall
take all steps necessary to file with the SEC and have declared effective or
cleared by the SEC any amendment or supplement to the Registration Statement so
as to correct the same and to cause the Prospectus included within such
Registration Statement as so corrected to be disseminated to the extent required
by applicable law.
SECTION 7.9. PREPARATION AND FILING OF TAX RETURNS.
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(a) Each party hereto shall, and shall cause its affiliates to, provide to
each of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in conducting
any audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies at no cost to the requesting party of
all relevant portions of relevant returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by taxing authorities and relevant records concerning the
ownership and tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file returns pursuant
to this Agreement shall bear all costs of filing such returns.
(b) Each of the Company, PalEx and the Stockholder shall comply with the
tax reporting requirements of Section 1.368-3 of the Treasury Regulations
promulgated under the Code, and shall treat the transaction as a tax-free
reorganization under Section 368(a) of the Code unless otherwise required by
law. The parties have independently determined and hereby agree that the
transaction constitutes a tax-free reorganization under Section 368(a) of the
Code and specifically that:
(i) Neither the Company nor PalEx is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(ii) The fair market value of the assets of the Company exceeds
the sum of its liabilities, plus the amount of liabilities, if any, to which the
assets are subject.
(iii)The Company is not under jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(iv) The fair market value of the PalEx Common Stock and other
consideration received by the Stockholder, will be approximately equal to the
fair market value of the Company Stock surrendered in the Merger.
(v) There is no intercorporate indebtedness existing between
PalEx and the Company that was issued, acquired, or will be settled at a
discount.
(vi) None of the compensation received by any
Stockholder-employee of the Company after the Merger will be separate
consideration for, or allocable to, any of their securities of the Company. None
of the shares of PalEx Common Stock received by the Stockholder in the Merger
will be separate consideration for, or allocable to, any employment agreement;
and the compensation paid to the Stockholder in their capacity as employees
including, but not limited to, amounts paid pursuant to the employment
agreements between the Company and the Stockholder and incentive compensation in
the form of stock options, will be for services actually rendered and
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will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(vii) The proposed Merger is effected through the laws of the
United States, a State thereof or the District of Columbia.
(viii) The proposed Merger is being undertaken for reasons
germane to the business of the Company.
SECTION 7.10. COVENANTS CONCERNING TAXES.
(a) (i) The Stockholder shall pay (and shall indemnify, defend and hold
harmless PalEx, as the Surviving Corporation, from and against liability with
respect to) any and all Taxes, interest, penalties and additions to Taxes that
are imposed on them or the Company: (i) attributable to the taxable income of
the Company for all taxable periods during which the Company was an S
corporation (the "S Corporation Period"); and (ii) as a result of the Company's
S election being treated as invalid or ineffective for any reason or such
election being revoked or terminated prior to the Merger.
(ii) The Surviving Corporation shall pay or cause to be paid
(and shall indemnify, defend and hold harmless the Stockholder from and against
liability with respect to) any and all Taxes, interest, penalties and additions
to Taxes attributable to the taxable income of the Surviving Corporation for the
period after the Merger (the "C Corporation Period").
(b) If the Stockholder receives notice of an intention by a taxing
authority to audit any return of the Stockholder that includes any item of
income, gain, deduction, loss or credit reported by the Company with respect to
the S Corporation Period that the Stockholder have reason to believe may affect
the Surviving Corporation's tax returns during the C Corporation Period, the
Stockholder shall inform the Surviving Corporation, in writing, of the audit
promptly after receipt of such notice. If the Stockholder receives notice from a
taxing authority of any proposed adjustment for which the Surviving Corporation
may be required to indemnify hereunder (a "Proposed Adjustment"), the
Stockholder shall give notice to the Surviving Corporation of the Proposed
Adjustment promptly after receipt of such notice from a taxing authority. Within
twenty (20) days following its receipt of such notice, the Surviving Corporation
shall give notice to the Stockholder of its determination as to whether it
desires the Stockholder to contest such Proposed Adjustment. Upon such request
the Stockholder, at his option and upon written notice to the Surviving
Corporation within ten (10) days after their receipt of the notice described in
the preceding sentence, shall (i) contest the Proposed Adjustment at the
Surviving Corporation's expense and permit the Surviving Corporation to
participate in (but not to control) such proceedings, or (ii) permit the
Surviving Corporation to contest the Proposed Adjustment (including pursuing all
administrative and judicial appeals and demands). The Surviving Corporation
shall pay to the Stockholder on demand all reasonable costs and expenses
(including reasonable attorneys' and accountants' fees) that the Stockholder may
incur in contesting such Proposed Adjustments. The Stockholder shall not make,
accept or enter into a
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settlement or other compromise, with respect to any Taxes indemnified hereunder,
or forego or terminate any proceeding undertaken hereunder without the consent
of the Surviving Corporation, which consent shall not be unreasonably withheld.
The Stockholder will reasonably assist if the Surviving Corporation contests any
Proposed Adjustment.
(c) If the Surviving Corporation receives notice of an intention by a
taxing authority to audit any return of the Surviving Corporation that includes
any item of income, gain, deduction, loss or credit reported by the Surviving
Corporation with respect to the C Corporation Period that the Surviving
Corporation has reason to believe may affect the Stockholder's tax returns
during the S Corporation Period, the Surviving Corporation shall inform the
Stockholder in writing, of the audit promptly after receipt of such notice. If
the Surviving Corporation receives notice from a taxing authority of any
proposed adjustment for which the Stockholder may be required to indemnify the
Surviving Corporation hereunder (a "Surviving Corporation Proposed Adjustment"),
the Surviving Corporation shall give notice to the Stockholder of the Surviving
Corporation Proposed Adjustment promptly after receipt of such notice from a
taxing authority. Upon receipt of such notice from the Surviving Corporation,
the Stockholder may, by in turn giving prompt written notice to the Surviving
Corporation, request that the Surviving Corporation contest such Surviving
Corporation Proposed Adjustment. If the Stockholder request that any Surviving
Corporation Proposed Adjustment be contested, then the Surviving Corporation
shall contest the Surviving Corporation Proposed Adjustment (including pursuing
all administrative and judicial appeals and processes) at the Stockholder's
expense and shall permit the Stockholder to participate in (but not to control)
such proceeding.
(d) The parties shall cooperate fully with each other in all matters
relating to Taxes and in the determination of amounts payable hereunder. In the
case of disagreement as to the course of action to be pursued in dealing with
taxing authorities (including, without limitation, matters with respect to
preparation and filing of tax returns, conduct of audits, and proceedings in
courts), the decision of the party (the Surviving Corporation, on the one hand,
or the Stockholder, on the other hand) who will economically benefit from or be
burdened by the course of action (or in the case both parties benefit and/or are
burdened, the decision of the party with the greatest benefit or burden) shall
control.
SECTION 7.11. REGISTRATION RIGHTS.
(a) If at any time or times after the date hereof but prior to the third
anniversary of the Effective Time, PalEx shall determine to register any of its
securities (for itself or for any holder of securities of PalEx) under the 1933
Act or any successor legislation (other than the Registration Statement or a
registration relating to stock option plans, employee benefit plans or a
transaction pursuant to Rule 145 under the Act), and in connection therewith
PalEx may lawfully register the PalEx Common Stock held by the Stockholder and
Main Street, PalEx will promptly give written notice thereof to the Stockholder
and Main Street and will include in such registration and effect the
registration under the 1933 Act of all Registrable Securities (as hereinafter
defined )that the Stockholder and Main Street may request in writing by notice
delivered to PalEx within 20 days after
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receipt by the Stockholder and Main Street of the notice given by PalEx;
PROVIDED, HOWEVER, that in connection with any such offering by PalEx of any of
its securities, no such registration of Registrable Securities shall be required
if the managing underwriter, if any, for PalEx advises it in writing that
including all or part of the Registrable Shares in such offering will materially
adversely affect the proposed offering and jeopardize PalEx 's ability to sell
its own securities in such offering. If such managing underwriter advises PalEx
that, in its opinion, part of the Registrable Securities may be included in such
offering without materially adversely affecting the proposed offering, then
PalEx shall be obligated to include such lesser number of Registrable Securities
in such offering, which shares shall be taken from those owned and held by a
group consisting of the Stockholder, Main Street and other holders of PalEx
Common Stock having registration rights that are PARI PASSU with those of the
Stockholder and Main Street, and such limitation shall be imposed upon the
Stockholder and such other holders pro rata on the basis of the total number of
shares of PalEx Common Stock owned by the Stockholder, Main Street and such
other holders or obtainable by them upon the exercise of rights with respect to
other securities owned by them. All expenses of such registration and offering
shall be borne by PalEx, except that the Stockholder and Main Street shall bear
underwriting commissions and discounts attributable to their Registrable
Securities being registered and the fees and expenses of separate counsel, if
any, for such Stockholder and Main Street. The Stockholder and Main Street shall
be entitled to an unlimited number of registrations under this Section 7.11.
(b) For the purposes of this Section 7.11, the term "Registrable
Securities" shall mean (i) the PalEx Common Stock currently held by Main Street,
(ii) PalEx Common Stock to be issued in connection with the Merger, and (iii)
any PalEx Common Stock issued or issuable with respect to the shares identified
in (i) and (ii) above by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
(c) Whenever, under the preceding paragraphs of this Section 7.11, PalEx
is required hereunder to register Registrable Securities, PalEx shall as
expeditiously as possible:
(i) Prepare and file with the SEC a registration statement with
respect to the Registrable Securities that complies with all requirements
of the Act;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with
respect to the sale of securities covered by such registration statement
for the period necessary to complete the proposed public offering (but in
no event for a period in excess of ninety (90) days);
(iii)Furnish to Stockholder such copies of each preliminary and
final prospectus and such other documents as each such Stockholder
may reasonably request to facilitate the disposition of such
Stockholder's Registrable Securities;
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(iv) Enter into an underwriting agreement with customary terms
and provisions as reasonably agreed by PalEx and the proposed
underwriter, if any, of the offering,
(v) Use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under applicable
state securities or "blue-sky" laws, provided that PalEx shall not be
required in connection therewith or as a condition thereto to qualify
to do business as a foreign corporation in any such jurisdiction
wherein it is not so qualified; and
(vi) Furnish to each selling Stockholder a signed counterpart,
addressed to the Stockholder, of
(A) an opinion of counsel to PalEx, and
(B) comfort letter(s) signed by the independent public
accountants who have certified PalEx's financial
statements included in the registration statement,
in each case, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountant's letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountant's letters delivered to the underwriters in underwritten public
offerings of securities.
(d) PalEx shall have the right to select the managing underwriter or
underwriters for any underwritten offering made pursuant to a registration under
this Section 7.11.
(e) In connection with any underwritten offering by PalEx in which the
Stockholder participate, the Stockholder shall, if requested by the managing
underwriter or underwriters thereof, agree not to sell any of their Registrable
Securities or any other securities of PalEx owned by such Stockholder in any
transaction other than pursuant to such underwritten offering for a period
beginning 60 days prior to the date PalEx and the underwriter reasonably expect
the registration statement to become effective, and for such period after the
effective date of the registration statement as is agreed upon by the
underwriters and PalEx (not to exceed 180 days), provided that the PalEx's
officers and directors and each holder of 5% or more of PalEx's issued and
outstanding PalEx Stock also agree to such limitations.
(f) PalEx may delay any underwritten offering pursuant to Section 7.11
when a condition or pending transaction exists the disclosure of which would
reasonably be expected to have a material adverse effect on the proposed
offering.
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(g) PalEx will indemnify Stockholder, each of its officers, directors and
partners, and each other person, if any, who controls such Stockholder within
the meaning of the Section 15 of the 1933 Act, against any losses, claims,
damages, expenses, or liabilities to which such persons may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement or any preliminary prospectus or final prospectus or
amendment or supplement thereto on the effective date thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and will reimburse such persons for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that PalEx will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, or any preliminary prospectus or final prospectus or
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to PalEx through an instrument duly executed by such
person specifically for use in the preparation thereof.
It shall be a condition precedent to the obligation of PalEx to include in
any registration statement any Registrable Securities then held by a Stockholder
that PalEx shall have received an undertaking, satisfactory to it and the
managing underwriter or underwriters, from Stockholder to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph) PalEx, each director of PalEx, each officer of PalEx who
shall sign such registration statement and the managing underwriter or
underwriters and any person who controls such Underwriters or PalEx within the
meaning of the 1933 Act, with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, if such statement or omission
was made in reliance upon and in conformity with information furnished to PalEx
through an instrument duly executed by the Stockholder specifically for use in
the preparation of such registration statement, preliminary prospectus or final
prospectus or such amendment or supplement thereto.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs in this Section 7.11, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assumed the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses incurred by the latter in connection with the
defense thereof.
SECTION 7.12. CONTRIBUTION TO COMPANY PROFIT SHARING PLAN. PalEx shall
make a one- time contribution of PalEx Common Stock to the Interstate Pallet
Co., Inc. Profit Sharing Plan (the
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"Plan") concurrently with the consummation of the IPO. PalEx shall contribute
that number of shares of PalEx Common Stock with a value equal to $75,000 based
on a price per share of PalEx Common Stock equal to the mid-point of the
estimated pricing range as set forth in the preliminary prospectus relating to
the IPO, adjusted to reflect a discount of 25%. The contribution of PalEx Common
Stock shall be allocated among the Company's employees based on the terms of the
Plan.
SECTION 7.13. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the SEC that may permit the sale of
PalEx Common Stock to the public without registration, PalEx agrees to use its
best efforts to:
(i) make and keep public information regarding PalEx available as those
terms are understood and defined in Rule 144 under the 1933 Act, at all times
from and after 90 days following the effective date of the first registration
under the 1933 Act filed by PalEx for an offering of its securities to the
general public;
(ii) file with the SEC in a timely manner all reports and other documents
required of PalEx under the 1933 Act and the 1934 Act at any time after it has
become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted PalEx Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by PalEx as to its compliance with the reporting requirements of Rule 144 (at
any time from and after 90 days following the effective date of the first
registration statement filed by PalEx for an offering of its securities to the
general public), and of the 1933 Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of PalEx, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
SECTION 7.14. PURCHASE OF STOCKHOLDER REAL PROPERTY. The Stockholder shall
have the right during the period beginning six months after the Consummation
Date and ending twelve months after the Consummation Date to require PalEx to
purchase the real property described on SCHEDULE 9.2. Stockholder shall provide
PalEx with written notice of his intention to exercise his right under this
Section 7.14. The purchase price for the real property shall be the average fair
market value as determined by two appraisers reasonably acceptable to PalEx and
Stockholder. PalEx shall pay, in cash at closing, the lesser of the full
purchase price or $1,200,000. The portion of the purchase price in excess of
$1,200,000, if any, shall be payable in equal monthly installments over a period
of sixty months and shall bear interest at the same rate as PalEx's then current
revolving credit facility as determined on the first day of each month.
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ARTICLE VIII
INDEMNIFICATION
The Stockholder and PalEx each make the following covenants:
SECTION 8.1. PALEX LOSSES.
(a) The Stockholder agrees to indemnify and hold harmless PalEx and its
directors, officers, employees, representatives, agents and attorneys from,
against and in respect of any and all PalEx Losses (as defined below) suffered,
sustained, incurred or required to be paid by any of them by reason of (i) any
representation or warranty made by the Company or the Stockholder in or pursuant
to this Agreement being untrue or incorrect in any respect; (ii) any failure by
the Company or the Stockholder to observe or perform their covenants and
agreements set forth in this Agreement or any other agreement or document
executed by them in connection with the transactions contemplated hereby; and
(iii) any liability under the 1933 Act, the 1934 Act or other Federal or state
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to the
Company or the Stockholder contained in any preliminary prospectus, relating to
the IPO, the Registration Statement or any prospectus forming a part thereof, or
any amendment thereof or supplement thereto, or arising out of or based upon any
omission to state therein a material fact relating to the Company or the
Stockholder required to be stated therein or necessary to make the statements
therein not misleading, and not provided to PalEx or its counsel by the Company
or the Stockholder; PROVIDED, HOWEVER, that such indemnity shall not inure to
the benefit of PalEx to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Stockholder provided, in writing, corrected
information to PalEx or its counsel for inclusion in the final prospectus prior
to distributing such prospectus, and such information was not so included. This
Section 8.1 is intended to indemnify PalEx and its directors, officers,
employees, representatives, agents and attorneys from the results of their own
negligence. The Stockholder's obligations pursuant to this Section 8.1 shall
expire one (1) year after the Closing, except with respect to (x) obligations
under Sections 4.13 and 7.10 hereof, which shall survive until the earlier of
(A) the expiration of the applicable periods (including any extensions) of the
respective statutes of limitation applicable to the payment of the Taxes or (B)
the completion of the final audit and determinations by the applicable taxing
authority and final disposition of any deficiency resulting therefrom; and (y)
solely to the extent that PalEx actually incurs liability under the 1933 Act or
the 1934 Act, the obligations under clause (iii) above shall survive until the
expiration of any applicable statute of limitations with respect to such claims.
(b) "PalEx Losses" shall mean all damages (including, without limitation,
amounts paid in settlement with the Stockholder's consent, which consent may not
be unreasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs and expenses (including, without limitation,
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reasonable attorneys' fees), penalties, fines, interest and monetary sanctions,
including, without limitation, reasonable attorneys' fees and costs incurred to
comply with injunctions and other court and agency orders, and other costs and
expenses incident to any suit, action, investigation, claim or proceeding or to
establish or enforce the rights of PalEx or such other persons to
indemnification hereunder.
SECTION 8.2. STOCKHOLDER LOSSES.
(a) PalEx agrees to indemnify and hold harmless the Stockholder, for and
in respect of any and all Stockholder Losses (as defined below) suffered,
sustained, incurred or required to be paid by the Stockholder by reason of (i)
any representation or warranty made by PalEx in or pursuant to this Agreement
being untrue or incorrect in any respect; (ii) any failure by PalEx to observe
or perform its covenants and agreements set forth in this Agreement or any other
agreement or document executed by it in connection with the transactions
contemplated hereby; or (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to PalEx or any of the Founding Companies other than the
Company contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to PalEx or any of the Founding Companies
other than the Company required to be stated therein or necessary to make the
statements therein not misleading. This Section 8.2 is intended to indemnify the
Stockholder from the results of his own negligence. PalEx's obligations under
this Section 8.2 shall expire one year after Closing, except that, if the
Stockholder actually incur liability under the 1933 Act or the 1934 Act, the
obligations under clause (iii) above shall survive until the expiration of any
applicable statute of limitations with respect to such claims.
(b) "Stockholder's Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the consent of PalEx, which consent
may not be reasonably withheld), losses, obligations, liabilities, claims,
deficiencies, costs and expenses (including, without limitation, reasonable
attorneys' fees), penalties, fines, interest and monetary sanctions, including,
without limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the right of the Stockholder to indemnification hereunder.
SECTION 8.3. NOTICE OF LOSS. A notice setting forth in reasonable detail
the breach or other matter which is asserted shall be promptly given to the
Indemnifying Party (as defined below) and, if such matter arises out of a suit,
action, investigation, proceeding or claim, such notice shall be given within
thirty (30) days after the Indemnified Party (as defined below) has knowledge of
the matter. The failure of the Indemnified Party to give notice hereunder shall
not release the Indemnifying Party from its obligations under this Article VIII,
except to the extent the Indemnifying Party is actually prejudiced by such
failure to give prompt notice. With respect to
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PalEx Losses, the Stockholder shall be the Indemnifying Party and PalEx and its
respective directors, officers, employees, representatives, agents and attorneys
shall be the Indemnified Parties. With respect to Stockholder Losses, PalEx
shall be the Indemnifying Party and the Stockholder shall be the Indemnified
Party.
SECTION 8.4. RIGHT TO DEFEND. Upon receipt of notice of any matter for
which indemnification might be claimed by an Indemnified Party, the Indemnifying
Party shall be entitled to defend, contest or otherwise protect against any such
matter at its own cost and expense, and the Indemnified Party must cooperate in
any such defense or other action. The Indemnified Party shall have the right,
but not the obligation, to participate at its own expense in defense thereof by
counsel of its own choosing, but the Indemnifying Party be entitled to control
the defense unless the Indemnified Party has relieved the Indemnifying Party
from liability with respect to the particular matter or the Indemnifying Party
fails to assume defense of the matter. In the event the Indemnifying Party shall
fail to defend, contest or otherwise protect in a timely manner against any
matter, the Indemnified Party shall have the right, but not the obligation,
thereafter to defend, contest or otherwise protect against the same and make any
compromise or settlement thereof and recover the reasonable cost thereof from
the Indemnifying Party including, without limitation, reasonable attorneys'
fees, disbursements and all amounts paid as a result of such suit, action,
investigation, claim or proceeding or the compromise or settlement thereof;
provided, however, that the Indemnified Party must send a written notice to the
Indemnifying Party of any such proposed settlement or compromise, which
settlement or compromise the Indemnifying Party may reject, in its reasonable
judgment, within ten (10) days of receipt of such notice. Failure to reject such
notice within such ten (10) day period shall be deemed an acceptance of such
settlement or compromise. The Indemnified Party shall have the right to effect a
settlement or compromise over the objection of the Indemnifying Party; provided,
that if (i) the Indemnifying Party is contesting such claim in good faith or
(ii) the Indemnifying Party has assumed the defense from the Indemnified Party,
the Indemnified Party waives any right to indemnity therefor. If the
Indemnifying Party undertakes the defense of such matters, the Indemnified Party
shall not, so long as the Indemnifying Party does not abandon the defense
thereof, be entitled to recover from the Indemnifying Party any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than the reasonable costs of investigation undertaken by
the Indemnified Party with the prior written consent of the Indemnifying Party.
SECTION 8.5. COOPERATION. Each of PalEx, the Company and the Stockholder
and each of their affiliates, successors and assigns shall cooperate with each
other in the defense of any suit, action, investigation, proceeding or claim by
a third party and, during normal business hours, shall afford each other access
to their books and records and employees relating to such suit, action,
investigation, proceeding or claim and shall furnish each other all such further
information that they have the right and power to furnish as may reasonably be
necessary to defend such suit, action, investigation, proceeding or claim.
SECTION 8.6. EXCLUSIVE REMEDY. The indemnification provided for in this
Article III shall be the exclusive remedy in any action seeking damages or any
other form of monetary relief
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brought by any party to this Agreement against another party, provided that,
nothing herein shall be construed to limit the right of a party, in a proper
case, to seek injunctive relief for a breach of this Agreement.
SECTION 8.7. LIMITATION UPON INDEMNITY.
(a) Neither the Stockholder nor PalEx shall be entitled to indemnification
from the other under the provisions of this Article VIII until such time as the
claims subject to indemnification by such party exceed, in the aggregate,
Forty-Eight Thousand Dollars ($48,000) (the "Indemnity Deductible").
(b) The aggregate indemnification obligations of the Stockholder under
this Article VIII shall be limited to the obligations in excess of the Indemnity
Deductible but not more than Four Million Eight Hundred Thousand Dollars
($4,800,000); PROVIDED, HOWEVER, if the per share price of the PalEx Common
Stock is less than the per share price of the PalEx Common Stock issued in the
IPO, the foregoing limit on indemnity obligations shall be reduced by the
difference in such prices multiplied by the number of shares of PalEx Common
Stock issued to the Stockholder pursuant to this Agreement.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date and continued fulfillment as
of the Consummation Date of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed;
(b) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect and no proceeding for
that purpose shall have been instituted by the SEC or any state regulatory
authorities;
(c) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the IPO or the Merger
shall have been issued and remain in effect;
(d) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which
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would prevent the consummation of the Merger or make the consummation of the
Merger illegal; and
(e) all material governmental and third party waivers, consents, orders
and approvals required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect.
SECTION 9.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date and
continued fulfillment as of the Consummation Date of the following additional
conditions:
(a) PalEx and Subsidiary shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of PalEx and
Subsidiary contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if made
at and as of such date, and the Company shall have received a certificate of the
chief executive officer of PalEx and Subsidiary to that effect;
(b) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to the Stockholder of the Merger;
(c) the Company shall have received an opinion from the legal or
accounting advisors of PalEx, at the expense of PalEx, that the Merger will
constitute a tax-free reorganization under Section 368 of the Code, in which
regard the Company and the Stockholder shall provide representations reasonably
required by such advisors in providing such opinion;
(d) PalEx shall upon consummation of the Merger enter into a lease with
the Stockholder for the real property described in SCHEDULE 9.2. The lease shall
be for an initial term of five years with an option to renew for an additional
five years. The rental shall be fair market rate to be adjusted upon the
exercise of the option to extend the term.; and
(e) All conditions to the merger of the other Founding Companies, on
substantially the same terms as provided herein, with subsidiaries of PalEx
shall have been satisfied or waived by the applicable party.
SECTION 9.3. CONDITIONS TO OBLIGATIONS OF PALEX TO EFFECT THE MERGER.
Unless waived by PalEx, the obligations of PalEx to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations
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and warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and PalEx shall have received a
Certificate of the President or Vice President - Finance of the Company to that
effect;
(b) the Stockholder shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Stockholder
contained in this Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if made at and
as of such date, and PalEx shall have received a Certificate of each Stockholder
to that effect;
(c) PalEx shall have received an opinion from Cantor, Arkema & Edmonds,
special counsel to the Company, dated the Closing Date, reasonably satisfactory
to PalEx and covering the due incorporation of the Company, the binding nature
of this Agreement, the effectiveness of the Merger and the validity of the
Company Stock to be exchanged in the Merger and certain other customary matters
reasonably requested by PalEx or its counsel;
(d) PalEx shall have received "COMFORT" letters in customary form from the
Company's independent public accountants, dated the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to PalEx) with respect to certain financial statements and other
financial information included in the Registration Statement and any subsequent
changes in specified balance sheet and income statement items, including total
assets, working capital, total stockholder' equity, total revenues and the total
and per share amounts of net income;
(e) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to PalEx of the Merger; and
(f) the Stockholder and the Company shall have received, prior to the
Closing Date, a binding written waiver of any noncompetition or noncompete
restrictions to which the Stockholder or the Company may be subject and which
may, in the opinion of PalEx, have a material adverse effect on PalEx or the
Surviving Corporation.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date under the following conditions:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by April 1, 1997 otherwise
than on account of delay or default on the part of the Company or the
Stockholder or any of their affiliates or associates;
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(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or the
Stockholder or any of their affiliates or associates;
(iii)if PalEx or Subsidiary (A) fails to perform in any material
respect any of their respective material covenants in this Agreement and (B)
does not cure such default in all material respects within 30 days after written
notice of such default is given to PalEx and Subsidiary; or
(iv) if PalEx fails to complete its acquisitions of Fraser or
Ridge.
(b) PalEx shall have the right to terminate this Agreement:
(i) if the Merger is not completed by April 1, 1997 otherwise
than on account of delay or default on the part of PalEx or any of its
stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of PalEx or any of
its 5% stockholders or any of their affiliates or associates;
(iii)if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is given to the Company by PalEx;
(iv) if the Stockholder (A) fails to perform in any material
respect any of their material covenants in this Agreement and (B) does not
cure such default in all material respects within 30 days after written
notice of such default is given to the Stockholder by PalEx; or
(v) If PalEx fails to complete its acquisitions of Fraser or
Ridge.
SECTION 10.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either PalEx or the Company, as provided in Section 10.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Subsidiary, PalEx or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
7.1, 7.3 and 7.5, all of which shall survive the termination). Nothing in this
Section 10.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 10.3. AMENDMENT. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law.
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SECTION 10.4. WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE XI
SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The PalEx Common Stock to be acquired by the Stockholder pursuant to
this Agreement is being acquired solely for such Stockholder's own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
SECTION 11.1. ECONOMIC RISK; SOPHISTICATION. The Stockholder represents
and warrants to PalEx that he or she is an "accredited investor" as defined in
Regulation D promulgated under the 1933 Act; that he or she is able to bear the
economic risk of an investment in the PalEx Common Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that he or she
is capable of evaluating the merits and risks of the proposed investment in the
PalEx Common Stock; and that he has had an adequate opportunity to ask questions
and receive answers from the officers of PalEx concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
PalEx, and the plans for the operations of the business of PalEx.
SECTION 11.2. TRANSFER RESTRICTIONS.
(a) Except for transfers to immediate family members who agree to be bound
by the restrictions set forth in this Section 11.2 (or trusts for the benefit of
the Stockholder or family members, the trustees of which so agree), and except
for sales in accordance with Section 7.11, for a period of two (2) years from
the Closing, the Stockholder shall not (a) sell, assign, exchange, transfer,
encumber, pledge, distribute or otherwise dispose of (i) any shares of PalEx
Common Stock received by the Stockholder in the Merger, or (ii) any interest
(including, without limitation, an option to buy or sell) in any such shares of
PalEx Common Stock, in whole or in part, and no such attempted transfer shall be
treated as effective for any purpose; or (b) engage in any transaction, whether
or not with respect to any shares of PalEx Common Stock or any interest therein,
the intent or effect of which is to reduce the risk of owning the shares of
PalEx Common Stock acquired pursuant to Section 2.2 hereof (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions). The certificates evidencing the PalEx Common Stock
delivered to the Stockholder pursuant to Section 2.2 of this Agreement will bear
a
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legend substantially in the form set forth below and containing such other
information as PalEx may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT
TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO_____________, 1999.
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Main Street will execute an agreement to restrict the transfer of its
shares of PalEx Common Stock in a manner identical to the restrictions included
in this Article XI.
ARTICLE XII
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
At the Closing, the Stockholder shall execute and deliver an employment
and noncompetition agreement substantially in the form of Exhibit 12 and Main
Street shall execute a noncompetition agreement with substantially the same
terms.
ARTICLE XIII
GENERAL PROVISIONS
SECTION 13.1. BROKERS. The Company represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for the fee described in SCHEDULE 13.1) or commission in connection with
the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. PalEx represents and warrants
that no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of PalEx or its stockholders (other than underwriting discounts and
commission to be paid in connection with the IPO).
SECTION 13.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
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(a) If to PalEx or Subsidiary, to:
Vance K. Maultsby, Jr.
Chief Executive Officer
3555 Timmons Lane, Suite 610
Houston, Texas 77027
with a copy to:
John Wombwell, Esq.
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(b) If to the Company, to:
Interstate Pallet Co., Inc.
3707 Nine Mile Road
Richmond, VA 23223
Attention: Stephen C. Sykes
with a copy to:
Steven M. Edmonds, Esq.
Cantor, Arkema & Edmonds
823 East Main Street
Richmond, Virginia 23219
SECTION 13.3. INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
SECTION 13.4. MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof and
(b) shall not be assigned by operation of law or otherwise, except that PalEx
may assign this Agreement to any other wholly-owned subsidiary of PalEx. THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION
AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE
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APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
SECTION 13.5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 13.6. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and except as set forth in
Section 8.1(a), nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
MAIN STREET CAPITAL PALEX, INC.
PARTNERS, L.P.
By: Main Street Advisory Partners, L.P By:/S/ VANCE K. MAULTSBY, JR.
Name: Vance K. Maultsby, Jr.
By: Main Street Merchant Partners, L.L.C. Title: Chief Executive Officer
By:/S/ SAM W. HUMPHREYS INTERSTATE ACQUISITION CORPORATION
Name: Sam W. Humphreys
Title: Managing Director
By: /S/ VANCE K. MAULTSBY, JR.
Name: Vance K. Maultsby, Jr.
Title: Chief Executive Officer
INTERSTATE PALLET CO., INC.
By:/S/ STEPHEN C. SYKES
Name: Stephen C. Sykes
Title: Chief Executive Officer
/S/ STEPHEN C. SYKES
Stephen C. Sykes, Individually
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SCHEDULE 2.1
MANNER OF CONVERSION
At the Closing, the Stockholder shall receive the Cash Component (as
defined below) and the Interstate Stock Component (as defined below). For
purposes of the Agreement, the terms Cash Component and Interstate Stock
Component shall have the following meanings:
(a) Cash Component shall mean (i) the cash equal to $1,200,000 less the
amount of the Adjusted Indebtedness (defined below) payable to the
Interstate Stockholder from the proceeds of the IPO, and (ii) assumption
of the Adjusted Indebtedness (defined below). The term Adjusted
Indebtedness shall mean the result obtained by subtracting from the
Company's total indebtedness as of the Closing Date indebtedness (i)
incurred and cash expenditures made after July 31, 1996 specifically to
fund capital expenditures after such date and (ii) attributable to
wood-waste storage bins and a nailing machine purchased in June 1996.
(b) Interstate Stock Component shall mean the number of shares of PalEx
Common Stock received by the Interstate Stockholder, which shall be
determined by applying the following formula:
INTERSTATE STOCK REFERENCE VALUE
Interstate Stock Component = 6,000,000 x Sum of Fraser, Ridge and
Interstate Stock Reference
Values
WHERE the Founding Companies Stock Reference Values will be
determined by subtracting from each Founding Company's Enterprise
Value ($36 million for Fraser and Ridge, $4.8 million for
Interstate) each Founding Company's Cash Component.
Each of the Founding Companies shall have the right to reduce their
respective Stock Component calculated above by returning shares of PalEx Common
Stock. The Founding Company shall receive 2.77778 options to purchase PalEx
Common Stock at the IPO price for each share of PalEx Common Stock returned. The
reduction of the Stock Component by a Founding Company shall not affect the
Stock Component of the other Founding Companies which shall be calculated as if
such reduction had not occurred.
A Founding Company shall exercise such right to return stock by written
notice to PalEx no later than 3 (three) days prior to the printing of the
Preliminary Prospectus in connection with the IPO.
EXHIBIT 10.4
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment and Non-Competition Agreement (the "Agreement"), dated
as of __________________, 1997, is by and among PalEx, Inc., a Delaware
corporation (the "Company"), Fraser Industries, Inc., a Texas corporation
("Fraser"), and ______________ ("Employee").
R E C I T A L S
WHEREAS, Fraser is engaged in the business of manufacturing, marketing,
repairing and recycling pallets and other shipping containers and providing
logistics services with respect thereto;
WHEREAS, the Company, Fraser, Fraser Acquisition Corporation ("Newco"),
Employee and certain other persons entered into an Agreement and Plan of
Reorganization and Merger, dated as of December ___, 1996 (the "Merger
Agreement") pursuant to which Newco will merge (the "Merger") with and into
Fraser, making Fraser a wholly owned subsidiary of the Company;
WHEREAS, in connection with the Merger, the Company desires to engage
Employee and Employee desires to accept such engagement;
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as
________________________________. As such, Employee shall have responsibilities,
duties and authority commensurate with such position and as may be assigned to
him by the Company from time to time during the term of this Agreement. Employee
will report to _____________________. Employee hereby accepts this employment
upon the terms and conditions herein contained and agrees to devote his time,
attention and best efforts to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Company.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. However, the foregoing limitations shall not be
construed as prohibiting Employee from making personal investments in such form
or manner
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as will neither require his services in the operation or affairs of the
enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. COMPENSATION. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) BASE SALARY. Beginning on the date of this Agreement, the base
salary payable to Employee shall be $__________ per year, payable on a regular
basis in accordance with the Company's standard payroll procedures. On at least
an annual basis, the Compensation Committee of the Board of Directors of the
Company (the "Committee") will review Employee's performance and may recommend
increases to such base salary if, in the Committee's discretion, any such
increase is warranted.
(b) INCENTIVE BONUS PLAN. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan setting forth the
criteria under which Employee and other officers and key employees will be
eligible to receive year-end bonus awards.
(c) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(1) Reimbursement for all business travel and other out-of-pocket
expenses (including those costs to maintain any professional
certifications held or obtained by Employee) reasonably incurred
by Employee in the performance of his services pursuant to this
Agreement. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of
any request for reimbursement and in a format and manner
consistent with the Company's expense reporting policy.
(2) ________ (__) weeks of paid vacation or such greater amount as
may be afforded officers and key employees at similar levels
under the Company's policies in effect from time to time.
(3) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for
Employee by the Board or the Committee and participation in all
other the Company-wide employee benefits as may be adopted from
time to time by the Company.
3. NON-COMPETITION AGREEMENT.
(a) Employee recognizes that the Company's willingness to enter into the
Merger Agreement and to consummate the Merger is based in material part on
Employee's agreement to the provisions of this paragraph 3, and that Employee's
breach of the provisions of this paragraph could materially damage the Company.
Therefore, in consideration of the benefits to be received by
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Employee as a result of the Merger, Employee agrees that the Employee shall not,
for a period of five (5) years immediately following the consummation of the
Merger, for any reason whatsoever, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, persons, company,
partnership, corporation or business of whatever nature:
(1) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in
direct competition with the Company or any of the Company's subsidiaries
within 100 miles of where the Company or any of the Company's
subsidiaries conducts business (the "Territory");
(2) call upon any person who is a managerial employee of the
Company (including its subsidiaries) for the purpose or with the intent
of enticing such employee away from or out of the employ of the Company
(including its subsidiaries); or
(3) call upon any person or entity which is a customer of the
Company (including its subsidiaries) within the Territory for the
purpose of soliciting or selling products or services in direct
competition with the Company within the Territory.
(b) Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to the Company for which
it would have no other adequate remedy, Employee agrees that the foregoing
covenant may be enforced by the Company in the event of breach by him, by
injunctions and restraining orders.
(c) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth in
this paragraph 3 are unreasonable, then it is the intention of the parties that
such restrictions be enforced to the fullest extent which the court deems
reasonable, and this Agreement shall thereby be reformed.
(d) Each of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants.
4. TERM; TERMINATION; RIGHTS ON TERMINATION. The term of this Agreement
shall begin on the date hereof and continue for _______ (__) years (the "Initial
Term"), and, unless terminated sooner as herein provided, shall continue
thereafter on a year-to-year basis on the same terms and conditions contained
herein. This Agreement and Employee's employment may be terminated in any one of
the followings ways:
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(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume his full-time duties at the
conclusion of such notice period. Also, Employee may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect and
provided, further, that, at the Company's request made within thirty (30) days
of the date of such written statement, Employee shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the conclusion of
Employee's doctor. In the event this Agreement is terminated as a result of
Employee's disability, Employee shall receive from the Company, in a lump-sum
payment due within ten (10) days of the effective date of termination, the base
salary at the rate then in effect for whatever time period is remaining under
the Initial Term of this Agreement or for six (6) months, whichever amount is
greater.
(c) GOOD CAUSE. The Company may terminate this Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1) Employee's
material and irreparable breach of this Agreement; (2) Employee's gross
negligence in the performance or intentional nonperformance (continuing for ten
(10) days after receipt of written notice of need to cure) of any of Employee's
material duties and responsibilities hereunder; (3) Employee's dishonesty, fraud
or misconduct with respect to the business or affairs of the Company which
materially and adversely affects the operations or reputation of the Company;
(4) Employee's conviction of a felony crime; or (5) chronic alcohol abuse or
illegal drug abuse by Employee. In the event of a termination for good cause, as
enumerated above, Employee shall have no right to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment, the
Company or Employee may, without cause, terminate this Agreement and Employee's
employment, effective thirty (30) days after written notice is provided to the
other party. Should Employee be terminated by the Company without cause,
Employee shall receive from the Company, in a lump-sum payment due on the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Initial Term of this Agreement or
for twelve (12) months, whichever amount is greater. Further, any termination
without cause by the Company shall operate to shorten the period set forth in
paragraph 3(a) and during which the terms of paragraph 3 apply to one (1) year
from the date of termination of employment. If Employee resigns or otherwise
terminates his employment without cause pursuant to this paragraph 5(d),
Employee shall receive no severance compensation.
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(e) CHANGE IN CONTROL OF THE COMPANY. This Agreement may be considered
terminated upon a "change in control", as defined in paragraph 11 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 11. All other rights and obligations of the Company and Employee under
this Agreement shall cease as of the effective date of termination, except that
the Company's obligations under paragraph 9 herein and Employee's obligations
under paragraphs 3, 5, 6, 7 and 9 herein shall survive such termination in
accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 15 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce his rights hereunder. Further, none of the provisions of
paragraph 3 shall apply in the event this Agreement is terminated as a result of
a breach by the Company.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or the
representatives, vendors or customers thereof which pertain to the business of
the Company shall be and remain the property of the Company and be subject at
all times to the discretion and control thereof. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company which are
collected by Employee shall be delivered promptly to the Company without request
by it upon termination of Employee's employment.
6. INVENTIONS. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment by the Company. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
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7. CONFIDENTIALITY.
(a) Employee acknowledges and agrees that all Confidential Information
(as defined below) of the Company is confidential and a valuable, special, and
unique asset of the Company that gives the Company an advantage over its actual
and potential, current, and future competitors. Employee further acknowledges
and agrees that Employee owes the Company a fiduciary duty to preserve and
protect all Confidential Information from unauthorized disclosure or
unauthorized use; certain Confidential Information constitutes "trade secrets"
under the laws of the state of _______________________; and unauthorized
disclosure or unauthorized use of the Company's Confidential Information would
irreparably injure the Company.
(b) Both during the term of Employee's employment and after the
termination of Employee's employment for any reason (including wrongful
termination), Employee shall hold all Confidential Information in strict
confidence, and shall not use any Confidential Information except for the
benefit of the Company, in accordance with the duties assigned to Employer.
Employee shall not, at any time (either during or after the term of Employee's
employment), disclose any Confidential Information to any person or entity
(except other employees of the Company who have a need to know the information
in connection with the performance of their employment duties), or copy,
reproduce, modify, decompile, or reverse engineer any Confidential Information,
or remove any Confidential Information from the Company's premises, without the
prior written consent of the President of the Company, or permit any other
person to do so. Employee shall take reasonable precautions to protect the
physical security of all documents and other material containing Confidential
Information (regardless of the medium on which the Confidential Information is
stored). This Agreement applies to all Confidential Information, whether now
known or later to become known to Employee.
(c) Upon the termination of Employee's employment with the Company for
any reason, and upon request of the Company at any other time, Employee shall
promptly surrender and deliver to the Company all documents and other written
material of any nature containing or pertaining to any Confidential Information
and shall not retain any such document or other material. Within five days of
any such request, Employee shall certify to the Company in writing that all such
materials have been returned.
(d) As used in this Agreement, the term "CONFIDENTIAL INFORMATION" shall
mean any information or material known to or used by or for the Company (whether
or not owned or developed by the Company and whether or not developed by
Employee) that is not generally known to the public. Confidential information
included, but is not limited to, the following: all trade secrets of the
Company; all information that the Company has marked as confidential or has
otherwise described to Employee (either in writing or orally) as confidential;
all nonpublic information concerning the Company's products, services,
prospective products or services, research, product designs, prices, discounts,
costs, marketing plans, marketing techniques, market studies, test data,
customers, customer lists and records, suppliers, and contracts; all Company
business records and plans; all Company personnel files; all financial
information of or concerning the Company; all
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information relating to operating system software, application software,
software and system methodology, hardware platforms, technical information,
inventions, computer programs and listings, source codes, object codes,
copyrights, and other intellectual property; all technical specifications; any
proprietary information belonging to the Company; all computer hardware or
software manual; all training or instruction manuals; all data and all computer
system passwords and user codes.
8. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. In the event that both Employee and the Company are made a party to
the same third-party action, complaint, suit or proceeding, the Company agrees
to engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by the Company shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and the Company shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use his best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company for errors or omissions made in
good faith where Employee has not exhibited gross, willful and wanton negligence
and misconduct or performed criminal and fraudulent acts which materially damage
the business of the Company.
9. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any noncompetition
agreement, invention or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of paragraph 12
below, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
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11. CHANGE IN CONTROL.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agrees to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause and the applicable portions of paragraph
5(d) will apply; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be triple the amount calculated under
the terms of paragraph 5(d) and the non-competition provisions of paragraph 3
shall not apply whatsoever.
(c) In any Change in Control situation, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(d) will apply as though the Company had terminated the
Agreement without cause; however, under such circumstances, the amount of the
lump-sum severance payment due to Employee shall be double the amount calculated
under the terms of paragraph 5(d) and the non-competition provisions of
paragraph 3 shall all apply for a period of two (2) years from the effective
date of termination.
(d) For purposes of applying paragraph 5 under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing.
(e) A "Change in Control" shall be deemed to have occurred if:
(1) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) of any voting security of the Company and immediately
after such acquisition such Person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more of the
total voting power of all of the then-outstanding voting securities of
the Company;
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(2) the individuals (A) who, as of the effective date of the
Company's registration statement with respect to its initial public
offering, constitute the Board of Directors of the Company (the
"Original Directors") or (B) who thereafter are elected to the Board of
Directors of the Company and whose election, or nomination for election,
to the Board of Directors of the Company was approved by a vote of at
least two-thirds (2/3) of the Original Directors then still in office
(such directors becoming "Additional Original Directors" immediately
following their election) or (C) who are elected to the Board of
Directors of the Company and whose election, or nomination for election,
to the Board of Directors of the Company was approved by a vote of at
least two-thirds (2/3) of the Original Directors and Additional Original
Directors then still in office (such directors also becoming "Additional
Original Directors" immediately following their election) (such
individuals being the "Continuing Directors"), cease for any reason to
constitute a majority of the members of the Board of Directors of the
Company;
(3) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not sought or obtained,
other than any such transaction which would result in at least 75% of
the total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
Beneficially Owned by at least 75 % of the holders of outstanding voting
securities of the Company immediately prior to the transaction, with the
voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction; or
(4) the stockholders of the Company shall approve a plan of
complete liquidation of The Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the Company).
(f) Employee must be notified in writing by the Company at any time that
the Company anticipates that a Change in Control may take place.
(g) Employee shall be reimbursed by the Company or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of his tax
return(s) showing the excise tax actually incurred by Employee.
12. COMPLETE AGREEMENT. Except as expressly provided herein, this
Agreement is not a promise of future employment. Employee has no oral
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and expression
of the agreement between the Company and Employee and of all the terms of this
Agreement, and
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it cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of the Company and Employee, and no term of this Agreement may be waived except
by writing signed by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: PalEx, Inc.
3555 Timmons Lane, Suite 610
Houston, Texas 77027
To Employee: __________________________
__________________________
__________________________
Notice shall be deemed given and effective three (3) days after the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received. Either
party may change the address for notice by notifying the other party of such
change in accordance with this paragraph 14.
14. SEVERABILITY HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. Any unresolved dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three (3) arbitrators in Houston, Texas, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured party.
The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Employee was terminated without disability or good cause, as defined in
paragraphs 4(b) and 4(c), respectively, or that the Company has otherwise
materially breached this Agreement. A decision by a majority of the arbitration
panel shall be final and binding. Judgment may be entered on the arbitrators'
award in any court having jurisdiction.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
-10-
<PAGE>
PALEX, INC.
By:
Name:
Title:
EMPLOYEE:
The State of Texas ss.
ss.
County of Harris ss.
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared , Chairman of the Board of Directors of PalEx, Inc.,
known to me to be the person whose
name is subscribed to the foregoing instrument and acknowledged to me that he
executed the same for the purposes and consideration therein expressed.
-11-
<PAGE>
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the ______ day of
__________________, 1996.
------------------------------------
Notary Public, State of Texas
My Commission Expires:
- ----------------------
The State of Texas ss.
ss.
County of Harris ss.
BEFORE ME, the undersigned, a Notary Public, on this day personally
appeared ___________________________, known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed
the same for the purposes and consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the ______ day of
__________________, 1996.
------------------------------------
Notary Public, State of Texas
My Commission Expires:
- ----------------------
-12-
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
December 20, 1996
December 18, 1996
PalEX, Inc.
3555 Timmons Lane
Suite No. 610
Houston, Texas 77027
Gentlemen:
I hereby consent to the references to me as a director of PalEx,
Inc. contained in this Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
/s/ A. E. HOLLAND, JR.
A. E. Holland, Jr.
December 18, 1996
PalEX, Inc.
3555 Timmons Lane
Suite No. 610
Houston, Texas 77027
Gentlemen:
I hereby consent to the references to me as a director of PalEx,
Inc. contained in this Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
/s/ TROY FRASER
Troy Fraser
December 18, 1996
PalEX, Inc.
3555 Timmons Lane
Suite No. 610
Houston, Texas 77027
Gentlemen:
I hereby consent to the references to me as a director of PalEx,
Inc. contained in this Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
/s/ STEPHEN C. SYKES
Stephen C. Sykes
December 18, 1996
PalEX, Inc.
3555 Timmons Lane
Suite No. 610
Houston, Texas 77027
Gentlemen:
I hereby consent to the references to me as a director of PalEx,
Inc. contained in this Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
/s/ TUCKER S. BRIDWELL
Tucker S. Bridwell
December 19, 1996
PalEX, Inc.
3555 Timmons Lane
Suite No. 610
Houston, Texas 77027
Gentlemen:
I hereby consent to the references to me as a director of PalEx,
Inc. contained in this Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
/s/ JOHN E. DRURY
John E. Drury
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF FRASER INDUSTRIES, INC. AS OF AUGUST 31, 1996
AND THE NINE-MONTHS ENDED AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 2,782
<ALLOWANCES> 57
<INVENTORY> 2875
<CURRENT-ASSETS> 5723
<PP&E> 11,798
<DEPRECIATION> (4,620)
<TOTAL-ASSETS> 13,059
<CURRENT-LIABILITIES> 4,647
<BONDS> 3,291
0
0
<COMMON> 11
<OTHER-SE> 6,400
<TOTAL-LIABILITY-AND-EQUITY> 13,059
<SALES> 36,185
<TOTAL-REVENUES> 36,185
<CGS> 30,236
<TOTAL-COSTS> 32,535
<OTHER-EXPENSES> 461
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 324
<INCOME-PRETAX> 3,189
<INCOME-TAX> 168
<INCOME-CONTINUING> 3,021
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,021
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
